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Private placements of convertible securities: stock returns, operating performance and abnormal accruals

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  • Jan L. Williams
  • Alex P. Tang

Abstract

This study examines long‐run stock returns, operating performance and abnormal accruals of private placements of convertible securities. We investigate the effects surrounding private placements to test and differentiate the implications of several competing hypotheses. While the monitoring and certification hypotheses suggest positive effects, the managerial entrenchment, overvaluation and windows‐of‐opportunity hypotheses suggest the opposite. We find that placing firms generally experience positive effects in the pre‐periods and negative effects in the post‐periods. Our overall findings are more consistent with the predictions of the overvaluation and windows‐of‐opportunity hypotheses while our post‐placement evidence is also consistent with the predictions of the managerial entrenchment hypothesis.

Suggested Citation

  • Jan L. Williams & Alex P. Tang, 2009. "Private placements of convertible securities: stock returns, operating performance and abnormal accruals," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 49(4), pages 873-899, December.
    • Handle: RePEc:bla:acctfi:v:49:y:2009:i:4:p:873-899
    DOI: 10.1111/j.1467-629X.2009.00311.x
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    2. Liao, Yulu & Huang, Paoyu & Ni, Yensen, 2022. "Convertible bond issuance volume, capital structure, and firm value," The North American Journal of Economics and Finance, Elsevier, vol. 60(C).
    3. Kelvin Jui Keng Tan & Jia Min Lee & Robert W. Faff & Kathy Walsh, 2016. "Short-selling pressure and last-resort debt finance: evidence from 144A high-yield risk-adjusted debt," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 56(4), pages 1149-1185, December.

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