What Motivates Exchangeable Debt Offerings?
Anna N. Danielova
McMaster University - Finance & Business Economics
Indiana University Dept. of Finance
Indiana University Bloomington - Department of Finance
September, 23 2009
Journal of Corporate Finance, Forthcoming
Debt that is convertible into shares of a company other than the issuer is called exchangeable debt. Most firms that issue exchangeable debt hold large blocks of shares in several companies, and in this paper we study factors that influence the selection of a particular block to serve as the underlying asset for an exchangeable debt issue. Comparisons between issuers’ holdings in different firms sheds light on issuers’ performance as monitors as well as their ability to engage in market timing. Holdings attached to these issues display superior past operating performance, but after the offer, both operating performance and stock returns decline. In contrast, we do not find similar systematic performance patters for the “other holdings” of exchangeable debt issuers.
Keywords: exchangeable debt, capital structure
JEL Classification: D82, G12, G14, G32Accepted Paper Series
Date posted: September 24, 2009
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