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Changes in risk characteristics of firms issuing hybrid securities: case of convertible bonds

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  • Atul Rai

Abstract

The present paper examines changes in risk characteristics of a firm when it issues convertible bonds by studying the change in beta before and after the issuance of convertible bonds. Using a sample of 149 firms, strong evidence was found of change in beta, along with significant heterogeneity across firms. On average, the beta of a firm issuing convertible bonds declines, although 40 per cent of firms showed an increase in beta. A cross‐sectional regression shows that after controlling for the reversion‐to‐mean phenomenon, the change in beta is significantly related to potential dilution of equity as well as to increase in debt, but is not significantly related to either the change in bond rating of a firm or to the stated use of funds from issuance.

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  • Atul Rai, 2005. "Changes in risk characteristics of firms issuing hybrid securities: case of convertible bonds," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 45(4), pages 635-651, December.
    • Handle: RePEc:bla:acctfi:v:45:y:2005:i:4:p:635-651
    DOI: 10.1111/j.1467-629X.2005.00148.x
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    Cited by:

    1. Zeidler, Felix & Mietzner, Mark & Schiereck, Dirk, 2012. "Risk dynamics surrounding the issuance of convertible bonds," Journal of Corporate Finance, Elsevier, vol. 18(2), pages 273-290.
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    3. Jinseon Seo & Woosuk Choi, 2021. "Classification of co‐operative member shares as equity or liabilities: The case of consumer co‐operatives in South Korea," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 92(2), pages 283-305, June.
    4. Renata Drumond Pinto Coelho Antonino & Wagner Moura Lamounier & Roberto Kaehler de Albuquerque Maranhão, 2010. "Systematic risk variations (beta) convertible debenture brazilian companies," Brazilian Business Review, Fucape Business School, vol. 7(3), pages 1-22, September.

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