Calls of convertible debt securities: no bad news at all
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In this paper, I examine the impact of in-the-money convertible bond calls on stock prices, employing a sample of US convertible bond calls over the period 1994–2011. In contrast to previous literature, I find that conversion-forcing convertible bond calls do not significantly influence stock prices. I posit that the discrepancy between my results and those in the literature is caused by amplified screening criteria, especially strong news cleaning. Companies tend to announce calls as side notes to other major corporate news, resulting in an event-study bias. Further, convertible bond design, moneyness of the conversion option at the announcement date, and convertible-arbitrage strategies cast doubt on the negative abnormal returns reported by previous literature.
KeywordsConversion-forcing convertible bond calls Event study
JEL ClassificationG14 G32
I thank Björn Imbierowicz and the participants of the Campus for Finance Conference at the WHU in Vallendar and participants at the Topics in Finance seminar at the University of St. Gallen, especially Tatjana Berg, for helpful comments and suggestions.
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