Are European Convertibles More Debt-Like than the Us Issues? An Empirical Analysis

27 Pages Posted: 30 Aug 2004

See all articles by Marie Dutordoir

Marie Dutordoir

University of Manchester - Manchester Business School

Linda M. Van De Gucht

KU Leuven - Department of Applied Economics

Date Written: August 2004

Abstract

The popular financial press often suggests that convertible debt issued by European firms is more debt-like in nature than convertible debt issued by US firms. This paper is the first to formally test the validity of this common perception. Our evidence indicates that European convertibles are effectively structured to be more debt-like than US convertibles. We also show that European convertible debt announcements induce less negative stockholder reactions than US announcements, which is consistent with the larger debt component of the former securities. Lastly, we explore some potential explanations for the relatively more debt-like design of European convertibles. Our results indicate that this finding may be attributable to both issuer-related and institutional differences across European and US convertible debt markets.

Keywords: Convertible debt, security design, event study

JEL Classification: G14, G32

Suggested Citation

Dutordoir, Marie and Van De Gucht, Linda M., Are European Convertibles More Debt-Like than the Us Issues? An Empirical Analysis (August 2004). Available at SSRN: https://ssrn.com/abstract=579681 or http://dx.doi.org/10.2139/ssrn.579681

Marie Dutordoir (Contact Author)

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Linda M. Van De Gucht

KU Leuven - Department of Applied Economics ( email )

Naamsestraat 69
B-3000 Leuven
BELGIUM

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