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The Motivations of Issuing Convertible Bonds - An Inquiry regarding the Sequential-Financing Hypothesis

Author

Listed:
  • Chun-Da Chen

    (Department of Economics and Finance, Tennessee State University, U.S.A.)

  • Fu-Pin Hung

    (Graduate Institute of Management, Da-Yeh University, Taiwan)

  • Dar-Hsin Chen

    (Department of Business Administration, National Taipei University, Taiwan)

  • Hsin-Ho Lin

    (Graduate Institute of Finance, National Chiao-Tung University, Taiwan)

Abstract

The aim of this paper is to re-examine the sequential-financing hypothesis in the context of convertible bond issuances from firms listed on the Taiwan Stock Exchange from 1994 to 2003. The results contend that announcements of convertible debt offerings are, on average, associated with significantly negative abnormal returns. In addition, the pre-announcement volatility of stock returns is not significantly different from the post-announcement volatility. The results also indicate that two characteristics of firms in this sample are consistent with the sequential-financing hypothesis, but they are also consistent with mitigation of the informational asymmetry problem. Overall, our evidence shows mixed support for the sequential-financing hypothesis in explaining the motivation of convertible debt financing used by Taiwanese firms.

Suggested Citation

  • Chun-Da Chen & Fu-Pin Hung & Dar-Hsin Chen & Hsin-Ho Lin, 2008. "The Motivations of Issuing Convertible Bonds - An Inquiry regarding the Sequential-Financing Hypothesis," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 4(2), pages 229-250, July.
    • Handle: RePEc:jec:journl:v:4:y:2008:i:2:p:229-250
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    Citations

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    Cited by:

    1. Sri Noor Aishah Binti Mohd Salleh & Karren Lee-Hwei Khaw, 2018. "Frequency and Sequence: Convertible Debt Issuance Announcement Effect on Stock Returns," Capital Markets Review, Malaysian Finance Association, vol. 26(2), pages 1-20.

    More about this item

    Keywords

    convertible bond; event study; multivariate regression model; sequential-financing hypothesis;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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