Long-Run Abnormal Performance Following Convertible Security Issues: New Evidence from the UK

36 Pages Posted: 4 Mar 2002

See all articles by Keng-Yu Ho

Keng-Yu Ho

National Taiwan University

Abhay Abhyankar

University of Exeter Business School, University of Exeter

Date Written: April 2002

Abstract

We study the long-run abnormal performance of a sample of UK firms following convertible security issues over the period 1982-1996. We make the following contributions relative to prior research. We are the first to study long-run stock price performance of firms following convertible preference share issues. Our data set has been extracted from original sources and thus mitigates to some extent concerns about data-snooping biases. Second, we study long-run abnormal performance both prior to and following the issue of convertible bonds and convertible preference shares. Our research complements previous research on announcement day wealth effects. Third, we apply a range of metrics to assess the robustness of long-run abnormal performance. We find significant evidence of negative post-offer abnormal performance using buy-and-hold abnormal returns calculated relative to a stock index and a size/book-to-market matched portfolio. However, using a calendar-time approach with the Fama-French three-factor and the Carhart four-factor model, the significance of the abnormal performance decreases. Finally, using a conditional asset pricing model, we find that the unconditional abnormal return following convertible preference share issues fades away. Our results show that estimates of long-run abnormal returns are sensitive to the methodology used and are not a stylised feature of our data.

Note: Previously titled "Long-Run Abnormal Performance Following Convertible Bond and Convertible Preference Share Issues: Evidence from the UK"

Keywords: Convertible Preference Share, Convertible Bond, Long-Run Abnormal Performance

JEL Classification: G00, G14, G32

Suggested Citation

Ho, Keng-Yu and Abhyankar, Abhay, Long-Run Abnormal Performance Following Convertible Security Issues: New Evidence from the UK (April 2002). Available at SSRN: https://ssrn.com/abstract=302142 or http://dx.doi.org/10.2139/ssrn.302142

Keng-Yu Ho (Contact Author)

National Taiwan University ( email )

1, Sec. 4, Roosevelt Road
Taipei, 106
Taiwan

Abhay Abhyankar

University of Exeter Business School, University of Exeter ( email )

Streatham Court
Exeter, EX4 4PU
United Kingdom

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