Why firms use convertibles: A further test of the sequential-financing hypothesis

Shao Chi Chang, Sheng Syan Chen, Yichen Liu

研究成果: Article同行評審

32 引文 斯高帕斯(Scopus)

摘要

The sequential-financing hypothesis advanced by Mayers [J. Financ. Econ. 47 (1998) 83] suggests that convertibles are more valuable for issuing firms with focused activities. The hypothesis also suggests that firms may design their convertibles so that there are sufficient internal funds for future investment expenditures so as to avoid the costs of accessing capital markets. This paper provides direct evidence for these two predictions. We find that the stock market responds more favorably to the announcements of convertible offerings by focused firms than to those by diversified firms. This finding holds even after controlling for other potential explanatory variables. We also find that the issuing firms' net new financing is not significantly different from zero over the life of the convertible debt. Thus, our results provide further support for the sequential-financing hypothesis that convertible debt financing is motivated by a desire to minimize security issue costs and agency costs of overinvestment for firms with promising growth opportunities to finance a sequence of potential investment options.

原文English
頁(從 - 到)1163-1183
頁數21
期刊Journal of Banking and Finance
28
發行號5
DOIs
出版狀態Published - 2004 五月

All Science Journal Classification (ASJC) codes

  • 金融
  • 經濟學與計量經濟學

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