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Convertible Securities And Heterogeneity Of Investor Beliefs

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  • Jie Jiao
  • An Yan

Abstract

type="main" xml:lang="en"> We conjecture that convertibles can better attract investors with different beliefs about a firm's future cash flows compared to straight bonds and stocks. Our empirical findings are consistent with this conjecture. We find that a firm is more likely to issue convertibles rather than seasoned stocks and straight bonds in the public markets when investors' beliefs are more heterogeneous. The positive effect of heterogeneous beliefs on the relative likelihood of convertibles is greater when investors are more optimistic. Overall, our findings provide a novel rationale based on investors' heterogeneous beliefs for the use of convertibles in corporate external financing decisions.

Suggested Citation

  • Jie Jiao & An Yan, 2015. "Convertible Securities And Heterogeneity Of Investor Beliefs," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 38(2), pages 255-282, June.
    • Handle: RePEc:bla:jfnres:v:38:y:2015:i:2:p:255-282
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    Cited by:

    1. Chemmanur, Thomas & Yan, An, 2017. "Product market advertising, heterogeneous beliefs, and the long-run performance of initial public offerings," Journal of Corporate Finance, Elsevier, vol. 46(C), pages 1-24.
    2. Xuejun Jin & Ziqing Chen & Xiaolan Yang, 2019. "Economic policy uncertainty and stock price crash risk," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(5), pages 1291-1318, March.

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