Is There a Window of Opportunity for Convertible Debt Issuance? Evidence for Western Europe
45 Pages Posted: 17 Nov 2005
Date Written: November 2005
This paper hypothesizes that hot convertible debt markets represent periods with smaller convertible debt-related financing costs. In line with this assumption, we find that the stock price impact of Western European convertible debt announcements is less negative during hot convertible debt windows. Importantly, this finding holds while controlling for equity and straight debt market conditions and for macroeconomic determinants. In addition, we show that stockholders are less sensitive to issuer- and issue-specific financing costs during hot convertible debt markets. Overall, these results indicate that hot convertible markets represent windows of opportunity for convertible debt issuance. Firms with high financing costs act accordingly by timing their convertible offering during a hot market.
Keywords: Convertible Debt, Hot Markets, Event Study, Western Europe
JEL Classification: G14, G32
Suggested Citation: Suggested Citation