The Interaction between Discouted Convertible Bonds and Stock Returns
Date Issued
2009
Date
2009
Author(s)
ChihYao, Tseng
Abstract
Convertible Bond (CB) has been a popular financing vehicle for companies listed on the Taiwan Stock Exchange. The issuing firms, however, usually issue CBs at a price much lower than the theoretical price. Conversion Price (CP) is a critical factor that results in an unusual high theoretical price, which may be manipulated by the insiders of the issuing firms. In addition, the value of reset clauses and growth opportunities are both dominant factors that make companies issue discounted CBs. Stock returns is not affected by the degree of CBs’ underestimation, but by the increasing amount of the issuing firms’ debt ratio. This implies that investors regard debt issuing as good news for companies because it shows good prospects for issuing firms.
Subjects
convertible bonds
SUR
conversion price
Type
thesis
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ntu-98-R96723036-1.pdf
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