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Article: Why do Companies Issue Convertible Bond Loans? An Empirical Analysis for the Canadian Market
- Article from:
- Canadian Journal of Administrative Sciences
- Article date:
- September 1, 2008
- Author:
CopyrightCopyright Administrative Sciences Association of Canada Sep 2008. Provided by ProQuest LLC. (Hide copyright information)
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Abstract
To identify issuer motives, we study the determinants of announcement effects of convertible debt issues in the Canadian market. Classified into equity- and debt-like, wealth effects are significantly more negative for equity-like convertible bond issuers. Equity-like convertibles
are significantly negatively affected by agency costs of equity. However, agency costs of debt have no significant effect on debt-like convertibles. Consistent with Stein (1992), this suggests convertibles in particular represent a substitute for equity. Moreover, convertible debt offers announced by income trusts experience significantly less negative wealth effects than offers by nontrusts-a finding ...