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Convertible Bond Financing: Are Some Issuers Mimickers?

Author

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  • Harjeet S. Bhabra
  • Ajay Patel

Abstract

This study examines whether firms issuing convertible bonds that do not infuse a firm's capiatl structure with equity mimic higher quality firms at offer announcement. Our evidence indicates that, prior to offer announcement, "mimicking" firms are smaller, riskier, less profitable, have lower market-to-book ratios, and more information asymmetry than non-mimicking firms. However, the convertible bonds issues by the two types of firms are indistinguishable. Offer announcements by mimicking firms result in a non-negative change in wealth, while wealth declines significantly for non-mimicking firms. The difference in wealth change is statistically significant.

Suggested Citation

  • Harjeet S. Bhabra & Ajay Patel, 1996. "Convertible Bond Financing: Are Some Issuers Mimickers?," Financial Management, Financial Management Association, vol. 25(4), Winter.
    • Handle: RePEc:fma:fmanag:bhabra96
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    Cited by:

    1. Véronique Bastin & Albert Corhay & Georges Hübner & Pierre-Armand Michel, 2002. "Development path and capital structure of belgian biotechnology firms," Working Paper Research 30, National Bank of Belgium.
    2. Wolfgang Drobetz & Matthias C. Grüninger & Claudia B. Wöhle, 2006. "Warum begeben Unternehmen Wandelanleihen?," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 142(III), pages 331-365, September.
    3. Burlacu, Radu & Jimenez-Garcès, Sonia, 2022. "Why do firms issue callable convertible bonds? A critique of the “backdoor equity financing” theory," Journal of Banking & Finance, Elsevier, vol. 144(C).

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