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The Interaction Between Pricing And Underwriting Spread In The New Issue Convertible Debt Market

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  • Roger D. Stover

Abstract

The objective of this research is to measure the interaction among pricing variables in new issues of convertible debt. In underwriting convertible debt issues, there is a simultaneous tradeoff among the conversion premium, yield, and underwriting spread. Since the three endogenous variables are interrelated, a simultaneous equation model is used to test for this interaction. Based on a sample of 264 new convertible debt offerings, the results indicate underpricing in terms of conversion premium and yield as well as simultaneous increases in yield and underwriting spread.

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  • Roger D. Stover, 1983. "The Interaction Between Pricing And Underwriting Spread In The New Issue Convertible Debt Market," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 6(4), pages 323-332, December.
    • Handle: RePEc:bla:jfnres:v:6:y:1983:i:4:p:323-332
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    File URL: http://hdl.handle.net/10.1111/j.1475-6803.1983.tb00342.x
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    References listed on IDEAS

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    1. Logue, Dennis E., 1973. "On the Pricing of Unseasoned Equity Issues: 1965–1969," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 8(1), pages 91-103, January.
    2. Eugene F. Brigham, 1966. "An Analysis Of Convertible Debentures: Theory And Some Empirical Evidence," Journal of Finance, American Finance Association, vol. 21(1), pages 35-54, March.
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    5. Alexander, Gordon J & Stover, Roger D & Kuhnau, David B, 1979. "Market Timing Strategies in Convertible Debt Financing," Journal of Finance, American Finance Association, vol. 34(1), pages 143-155, March.
    6. Edward A. Dyl & Michael D. Joehnk, 1976. "Competitive versus Negotiated Underwriting of Public Utility Debt," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 680-689, Autumn.
    7. Logue, Dennis E & Lindvall, John R, 1974. "The Behavior of Investment Bankers: An Econometric Investigation," Journal of Finance, American Finance Association, vol. 29(1), pages 203-215, March.
    8. Ederington, Louis H., 1975. "Uncertainty, competition, and costs in corporate bond underwriting," Journal of Financial Economics, Elsevier, vol. 2(1), pages 71-94, March.
    9. Baron, David P & Holmstrom, Bengt, 1980. "The Investment Banking Contract for New Issues under Asymmetric Information: Delegation and the Incentive Problem," Journal of Finance, American Finance Association, vol. 35(5), pages 1115-1138, December.
    10. Baron, D. P. & Holmström, B. R., 1980. "Abstract: The Investment Banking Contract for New Issues Under Asymmetric Information: Delegation and the Incentive Problem," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 15(4), pages 851-851, November.
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    Cited by:

    1. Randall S. Billingsley & Robert E. Lamy & G. Rodney Thompson, 1986. "Valuation Of Primary Issue Convertible Bonds," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 9(3), pages 251-259, September.

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