Do Convertible Bond Issuers Cater to Investor Demand?
51 Pages Posted: 24 Aug 2009
Date Written: August 24, 2009
Investor demand for convertible debt may change over time, due to changes in investor tastes and/or in funds available for convertible investment. We examine whether security-issuing firms cater to temporal fluctuations in investor demand for convertible debt. We find that investor demand proxies are able to explain approximately one-third of the time-series of quarterly U.S. convertible debt volumes over the period 1975 to 2007. Our findings are robust to controlling for intertemporal changes in macroeconomic conditions and convertible debt issuer characteristics. We also document that convertible issuers act opportunistically by pricing their offerings more favorably following increases in investor demand for convertibles.
Keywords: Catering, Convertible Debt, Underpricing
JEL Classification: G32, G39
Suggested Citation: Suggested Citation