What Motivates Exchangeable Debt Offerings?

Posted: 24 Sep 2009  

Anna N. Danielova

McMaster University - Finance & Business Economics

Scott Smart

Indiana University - Kelley School of Business - Department of Finance

John Boquist

Indiana University - Kelley School of Business - Department of Finance

Date Written: September, 23 2009

Abstract

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, G32

Suggested Citation

Danielova, Anna N. and Smart, Scott and Boquist, John, What Motivates Exchangeable Debt Offerings? (September, 23 2009). Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1477687

Anna N. Danielova

McMaster University - Finance & Business Economics ( email )

School of Business
1280 Main St. W.
Hamilton, ON L8S 4M4
Canada

Scott B. Smart (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Kelley School of Business
Bloomington, IN 47405
United States
812-855-3401 (Phone)
812-855-5875 (Fax)

John Boquist

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-8568 (Phone)
812-855-5875 (Fax)

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