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Convertible bond announcement effects: Why is Japan different?

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  • Dutordoir, Marie
  • Li, Hui
  • Liu, Frank Hong
  • Verwijmeren, Patrick

Abstract

U.S. and Japanese firms dominate global convertible bond issuance. Previous research documents more favorable convertible bond announcement effects in Japan than in the U.S. and other developed countries. Using a global sample of convertible bonds issued from 1982 to 2012, we find that the more favorable announcement effects of Japanese convertibles are driven by their stated uses of proceeds. Japanese convertibles more often include capital expenditure as an intended use, while U.S. firms tend to mention general purposes to motivate their offering. Our findings illustrate the value to firms of being more explicit when disclosing the intended use of proceeds of security offerings.

Suggested Citation

  • Dutordoir, Marie & Li, Hui & Liu, Frank Hong & Verwijmeren, Patrick, 2016. "Convertible bond announcement effects: Why is Japan different?," Journal of Corporate Finance, Elsevier, vol. 37(C), pages 76-92.
    • Handle: RePEc:eee:corfin:v:37:y:2016:i:c:p:76-92
    DOI: 10.1016/j.jcorpfin.2015.12.006
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    3. Kim, Hyeong Joon & Han, Seung Hun, 2019. "Convertible bond announcement returns, capital expenditures, and investment opportunities: Evidence from Korea," Pacific-Basin Finance Journal, Elsevier, vol. 53(C), pages 331-348.
    4. Yun Shen & Damien Wallace & Krishna Reddy & Vikash Ramiah, 2022. "An investigation of CEO characteristics on firm performance," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(3), pages 3563-3607, September.
    5. Wang, Lan & Chen, Langnan & Chen, Jieni, 2019. "Announcement effect and its determinants of exchangeable bonds," Finance Research Letters, Elsevier, vol. 30(C), pages 76-82.
    6. Pascal Barneto & Stéphane Ouvrard & Yves Rannou, 2019. "Les titres hybrides : de leur émission à leur classement comptable. Un enjeu de contrôle ?," Post-Print hal-02311469, HAL.
    7. Dutordoir, Marie & Strong, Norman C. & Sun, Ping, 2018. "Corporate social responsibility and seasoned equity offerings," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 158-179.
    8. Caporale, Guglielmo Maria & Kang, Woo-Young, 2021. "On the preferences of CoCo bond buyers and sellers," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 72(C).
    9. Sri Noor Aishah Binti Mohd Salleh & Karren Lee-Hwei Khaw, 2018. "Frequency and Sequence: Convertible Debt Issuance Announcement Effect on Stock Returns," Capital Markets Review, Malaysian Finance Association, vol. 26(2), pages 1-20.
    10. Marks, Joseph M. & Musumeci, Jim, 2017. "Misspecification in event studies," Journal of Corporate Finance, Elsevier, vol. 45(C), pages 333-341.
    11. Liao, Yulu & Huang, Paoyu & Ni, Yensen, 2022. "Convertible bond issuance volume, capital structure, and firm value," The North American Journal of Economics and Finance, Elsevier, vol. 60(C).
    12. Grundy, Bruce D. & Verwijmeren, Patrick, 2020. "The external financing of investment," Journal of Corporate Finance, Elsevier, vol. 65(C).
    13. Ling, Yu-Xiu & Xie, Chi & Wang, Gang-Jin, 2022. "Interconnectedness between convertible bonds and underlying stocks in the Chinese capital market: A multilayer network perspective," Emerging Markets Review, Elsevier, vol. 52(C).

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    More about this item

    Keywords

    Convertible bonds; Capital expenditure; Disclosure standards; Japan; Stated use of proceeds;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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