IDEAS home Printed from https://ideas.repec.org/a/eee/corfin/v37y2016icp76-92.html
   My bibliography  Save this article

Convertible bond announcement effects: Why is Japan different?

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0929119915001558
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Duca, Eric & Dutordoir, Marie & Veld, Chris & Verwijmeren, Patrick, 2012. "Why are convertible bond announcements associated with increasingly negative issuer stock returns? An arbitrage-based explanation," Journal of Banking & Finance, Elsevier, vol. 36(11), pages 2884-2899.
    2. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    3. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    4. Joon Chae, 2005. "Trading Volume, Information Asymmetry, and Timing Information," Journal of Finance, American Finance Association, vol. 60(1), pages 413-442, February.
    5. Autore, Don M. & Bray, David E. & Peterson, David R., 2009. "Intended use of proceeds and the long-run performance of seasoned equity issuers," Journal of Corporate Finance, Elsevier, vol. 15(3), pages 358-367, June.
    6. Brennan, Michael J & Kraus, Alan, 1987. " Efficient Financing under Asymmetric Information," Journal of Finance, American Finance Association, vol. 42(5), pages 1225-1243, December.
    7. Kang, Jun-Koo & Kim, Yong-Cheol & Park, Kyung-Joo & Stulz, René M., 1995. "An Analysis of the Wealth Effects of Japanese Offshore Dollar-Denominated Convertible and Warrant Bond Issues," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(2), pages 257-270, June.
    8. Krasker, William S, 1986. " Stock Price Movements in Response to Stock Issues under Asymmetric Information," Journal of Finance, American Finance Association, vol. 41(1), pages 93-105, March.
    9. de Jong, Abe & Dutordoir, Marie & Verwijmeren, Patrick, 2011. "Why do convertible issuers simultaneously repurchase stock? An arbitrage-based explanation," Journal of Financial Economics, Elsevier, vol. 100(1), pages 113-129, April.
    10. de Jong, Abe & Veld, Chris, 2001. "An empirical analysis of incremental capital structure decisions under managerial entrenchment," Journal of Banking & Finance, Elsevier, vol. 25(10), pages 1857-1895, October.
    11. Choe, Hyuk & Masulis, Ronald W. & Nanda, Vikram, 1993. "Common stock offerings across the business cycle : Theory and evidence," Journal of Empirical Finance, Elsevier, vol. 1(1), pages 3-31, June.
    12. Eckbo, B. Espen, 1986. "Valuation effects of corporate debt offerings," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 119-151.
    13. Lucas, Deborah J & McDonald, Robert L, 1990. " Equity Issues and Stock Price Dynamics," Journal of Finance, American Finance Association, vol. 45(4), pages 1019-1043, September.
    14. John Elliott & Dale Morse & Gordon Richardson, 1984. "The Association between Insider Trading and Information Announcements," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 521-536, Winter.
    15. Stein, Jeremy C., 1992. "Convertible bonds as backdoor equity financing," Journal of Financial Economics, Elsevier, vol. 32(1), pages 3-21, August.
    16. Andrew J. Leone & Steve Rock & Michael Willenborg, 2007. "Disclosure of Intended Use of Proceeds and Underpricing in Initial Public Offerings," Journal of Accounting Research, Wiley Blackwell, vol. 45(1), pages 111-153, March.
    17. Chang, Shao-Chi & Chen, Sheng-Syan & Liu, Yichen, 2004. "Why firms use convertibles: A further test of the sequential-financing hypothesis," Journal of Banking & Finance, Elsevier, vol. 28(5), pages 1163-1183, May.
    18. Mikkelson, Wayne H. & Partch, M. Megan, 1986. "Valuation effects of security offerings and the issuance process," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 31-60.
    19. Magennis, Darren & Watts, Edward & Wright, Sue, 1998. "Convertible notes: the debt versus equity classification problem," Journal of Multinational Financial Management, Elsevier, vol. 8(2-3), pages 303-315, September.
    20. Tim Loughran & Jay Ritter, 2004. "Why Has IPO Underpricing Changed Over Time?," Financial Management, Financial Management Association, vol. 33(3), Fall.
    21. Burlacu, Radu, 2000. "New evidence on the pecking order hypothesis: the case of French convertible bonds," Journal of Multinational Financial Management, Elsevier, vol. 10(3-4), pages 439-459, December.
    22. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    23. Kato, Kiyoshi & Schallheim, James S., 1993. "Private equity financings in Japan and corporate grouping (keiretsu)," Pacific-Basin Finance Journal, Elsevier, vol. 1(3), pages 287-307, September.
    24. Kang, Jun-Koo & Stulz, Rene M, 1996. "How Different Is Japanese Corporate Finance? An Investigation of the Information Content of New Security Issues," Review of Financial Studies, Society for Financial Studies, vol. 9(1), pages 109-139.
    25. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    26. Green, Richard C., 1984. "Investment incentives, debt, and warrants," Journal of Financial Economics, Elsevier, vol. 13(1), pages 115-136, March.
    27. Viswanath, P. V., 1993. "Strategic Considerations, the Pecking Order Hypothesis, and Market Reactions to Equity Financing," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(2), pages 213-234, June.
    28. 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.
    29. Stephen J. Brown & Bruce D. Grundy & Craig M. Lewis & Patrick Verwijmeren, 2012. "Convertibles and Hedge Funds as Distributors of Equity Exposure," Review of Financial Studies, Society for Financial Studies, vol. 25(10), pages 3077-3112.
    30. Dutordoir, Marie & Van de Gucht, Linda, 2007. "Are there windows of opportunity for convertible debt issuance? Evidence for Western Europe," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2828-2846, September.
    31. McConnell, John J. & Muscarella, Chris J., 1985. "Corporate capital expenditure decisions and the market value of the firm," Journal of Financial Economics, Elsevier, vol. 14(3), pages 399-422, September.
    32. Walker, Mark D. & Yost, Keven, 2008. "Seasoned equity offerings: What firms say, do, and how the market reacts," Journal of Corporate Finance, Elsevier, vol. 14(4), pages 376-386, September.
    33. Easterbrook, Frank H, 1984. "Two Agency-Cost Explanations of Dividends," American Economic Review, American Economic Association, vol. 74(4), pages 650-659, September.
    34. Choi, Darwin & Getmansky, Mila & Tookes, Heather, 2009. "Convertible bond arbitrage, liquidity externalities, and stock prices," Journal of Financial Economics, Elsevier, vol. 91(2), pages 227-251, February.
    35. 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.
    36. de Jong, Abe & Roosenboom, Peter & Schramade, Willem, 2006. "Bond underwriting fees and keiretsu affiliation in Japan," Pacific-Basin Finance Journal, Elsevier, vol. 14(5), pages 522-545, November.
    37. Verrecchia, Robert E., 1983. "Discretionary disclosure," Journal of Accounting and Economics, Elsevier, vol. 5(1), pages 179-194, April.
    38. Dann, Larry Y. & Mikkelson, Wayne H., 1984. "Convertible debt issuance, capital structure change and financing-related information : Some new evidence," Journal of Financial Economics, Elsevier, vol. 13(2), pages 157-186, June.
    39. Sudip Datta & Mai Iskandar‐Datta & Ajay Patel, 2000. "Some Evidence on the Uniqueness of Initial Public Debt Offerings," Journal of Finance, American Finance Association, vol. 55(2), pages 715-743, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Marks, Joseph M. & Musumeci, Jim, 2017. "Misspecification in event studies," Journal of Corporate Finance, Elsevier, vol. 45(C), pages 333-341.
    2. 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.
    3. Guglielmo Maria Caporale & Woo-Young Kang, 2019. "On the preferences of CoCo bond buyers and sellers: a logistic regression analysis," CESifo Working Paper Series 7551, CESifo Group Munich.
    4. Hebattallah Aboulmaaty & Pascal Barneto & Stéphane Ouvrard & Yves Rannou, 2019. "La distinction entre dettes et capitaux propres : une question de gouvernance ?," Post-Print hal-02311469, HAL.
    5. Xiaoguang Zhou & Yadi Cui, 2019. "Green Bonds, Corporate Performance, and Corporate Social Responsibility," Sustainability, MDPI, Open Access Journal, vol. 11(23), pages 1-27, December.
    6. 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.
    7. 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.

    More about this item

    Keywords

    Convertible bonds; Capital expenditure; Disclosure standards; Japan; Stated use of proceeds;

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:corfin:v:37:y:2016:i:c:p:76-92. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/jcorpfin .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.