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The Valuation Effects of Private Placements of Convertible Debt

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  • Fields, L Paige
  • Mais, Eric L

Abstract

Share price reactions to announcements of sixty-one private placements of convertible debt securities are investigated and a significant positive average abnormal return of 1.80 percent is documented. This unique result contrasts with the negative average abnormal return associated with public sales of convertible debt securities. The positive effect on common shareholders' wealth appears to be related to the relative size of the private issue and unrelated to the degree to which the convertible bond is "out-of-the-money" at issuance. Copyright 1991 by American Finance Association.

Suggested Citation

  • Fields, L Paige & Mais, Eric L, 1991. "The Valuation Effects of Private Placements of Convertible Debt," Journal of Finance, American Finance Association, vol. 46(5), pages 1925-1932, December.
    • Handle: RePEc:bla:jfinan:v:46:y:1991:i:5:p:1925-32
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    Cited by:

    1. Jan L. Williams & Alex P. Tang, 2009. "Private placements of convertible securities: stock returns, operating performance and abnormal accruals," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 49(4), pages 873-899, December.
    2. 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.
    3. Manuel Ammann & Kristian Blickle & Christian Ehmann, 2017. "Announcement Effects of Contingent Convertible Securities: Evidence from the Global Banking Industry," European Financial Management, European Financial Management Association, vol. 23(1), pages 127-152, January.
    4. Hackney, John & Henry, Tyler R. & Koski, Jennifer L., 2020. "Arbitrage vs. informed short selling: Evidence from convertible bond issuers," Journal of Corporate Finance, Elsevier, vol. 65(C).
    5. Henderson, Brian J. & Zhao, Bo, 2014. "More than meets the eye: Convertible bond issuers' concurrent transactions," Journal of Corporate Finance, Elsevier, vol. 24(C), pages 57-79.
    6. Yonghyun Kwon & Seung Hun Han & Young Woo Koh, 2022. "Production Suspension, Corporate Governance, and Firm Value," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(10), pages 2711-2735, August.
    7. 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).
    8. Uday Chandra & Nandkumar (Nandu) Nayar, 2008. "The Information Content of Private Debt Placements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(9‐10), pages 1164-1195, November.
    9. Dutordoir, Marie & Lewis, Craig & Seward, James & Veld, Chris, 2014. "What we do and do not know about convertible bond financing," Journal of Corporate Finance, Elsevier, vol. 24(C), pages 3-20.
    10. Abhyankar, Abhay & Dunning, Alison, 1999. "Wealth effects of convertible bond and convertible preference share issues: An empirical analysis of the UK market," Journal of Banking & Finance, Elsevier, vol. 23(7), pages 1043-1065, July.
    11. Dennis, Steven A. & Lu, Weili, 2008. "New considerations in the announcement effects of privately placed debt," International Review of Financial Analysis, Elsevier, vol. 17(3), pages 507-522, June.
    12. Marc Berninger & Paul Bossong & Dirk Schiereck & Marcel Steinhardt, 2023. "Too transparent for signalling? A global analysis of bond issues by property companies," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(3), pages 3125-3145, September.
    13. Marciukaityte, Dalia & Varma, Raj, 2007. "Institutional investors as suppliers of equity-linked capital: Evidence from privately placed convertible debt," Journal of Business Research, Elsevier, vol. 60(4), pages 357-364, April.
    14. Uday Chandra & Nandkumar (Nandu) Nayar, 2008. "The Information Content of Private Debt Placements," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(9-10), pages 1164-1195.
    15. Finnerty, John D. & Jiao, Jie & Yan, An, 2012. "Convertible securities in merger transactions," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 275-289.
    16. Ammann, Manuel & Fehr, Martin & Seiz, Ralf, 2006. "New evidence on the announcement effect of convertible and exchangeable bonds," Journal of Multinational Financial Management, Elsevier, vol. 16(1), pages 43-63, February.
    17. Tian‐Shyr Dai & Chen‐Chiang Fan & Liang‐Chih Liu & Chuan‐Ju Wang & Jr‐Yan Wang, 2022. "A stochastic‐volatility equity‐price tree for pricing convertible bonds with endogenous firm values and default risks determined by the first‐passage default model," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(12), pages 2103-2134, December.
    18. Persons, John C., 2000. "Fully revealing equilibria with suboptimal investment," Journal of Corporate Finance, Elsevier, vol. 6(3), pages 331-344, September.

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