A Stock Market Reaction Following Convertible Bond Issuance: Evidence from Japan

18 Pages Posted: 2 Nov 2005

See all articles by Wei Cheng

Wei Cheng

Massey University

Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance

Puspakaran Kesayan

Universiti Utara Malaysia (UUM)

Abstract

This paper examines the stock price reaction to the announcement of convertible bonds (CBs) issuance during the period 1996 through 2002 in Japan. We discover a significantly negative stock price reaction to the announcement of CBs. This result conforms to the negative stock reaction in the U.S. market but is inconsistent with the previous study in Japan. Firm size is evidenced increasing the negative cross-sectional variation of abnormal stock return, while the growth options have positive relationship. There is no evidence of the association between the leverage and the abnormal return. In addition, the long-term performance of the stock prices after the CBs issuance firms are found under-performing the market index and what they should have done given their levels of systematic risks. Coupling with the negative stock price reaction around the issuance announcement period, the Japanese issuance firms under-react to the CBs issuance, consistent with the under-reaction hypothesis that has been explained by the U.S. empirical results.

Keywords: Convertible bond, Japan, Event study

JEL Classification: G10

Suggested Citation

Cheng, Wei and Visaltanachoti, Nuttawat and Kesayan, Puspakaran, A Stock Market Reaction Following Convertible Bond Issuance: Evidence from Japan. International Journal of Business, Vol. 10, No. 4, 2005, Available at SSRN: https://ssrn.com/abstract=830064

Wei Cheng

Massey University ( email )

Private Bag 11 222
Palmerston North, Manawatu 4442
New Zealand

Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance ( email )

School of Economics and Finance
Private Bag 102904, NSMC
Auckland
New Zealand
64 9 414 0800 (43169) (Phone)
64 9 441 8177 (Fax)

Puspakaran Kesayan (Contact Author)

Universiti Utara Malaysia (UUM) ( email )

Finance Dept, School of Econ., Finance & Banking
East Wing, COB Main Bldg,Universiti Utara Malaysia
Sintok 06010 Kedah, 06010
Malaysia
+604-9286966 (Phone)
+604-928 (Fax)

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