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Calls of convertible debt securities: no bad news at all

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  • Tobias Nigbur

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Abstract

In this paper, I examine the impact of in-the-money convertible bond calls on stock prices, employing a sample of US convertible bond calls over the period 1994–2011. In contrast to previous literature, I find that conversion-forcing convertible bond calls do not significantly influence stock prices. I posit that the discrepancy between my results and those in the literature is caused by amplified screening criteria, especially strong news cleaning. Companies tend to announce calls as side notes to other major corporate news, resulting in an event-study bias. Further, convertible bond design, moneyness of the conversion option at the announcement date, and convertible-arbitrage strategies cast doubt on the negative abnormal returns reported by previous literature. Copyright Swiss Society for Financial Market Research 2015

Suggested Citation

  • Tobias Nigbur, 2015. "Calls of convertible debt securities: no bad news at all," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 29(1), pages 61-79, February.
  • Handle: RePEc:kap:fmktpm:v:29:y:2015:i:1:p:61-79
    DOI: 10.1007/s11408-014-0243-z
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    References listed on IDEAS

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    More about this item

    Keywords

    Conversion-forcing convertible bond calls; Event study; G14; G32;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • 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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