The long-run performance of firms that issue convertible debt: An empirical analysis of operating characteristics and analyst forecasts

Craig M. Lewis, Richard J. Rogalski, James Seward

Research output: Contribution to journalArticle

38 Citations (Scopus)

Abstract

Many firms issue hybrid securities, such as convertible debt, instead of standard securities like straight debt or common equity. Theoretical arguments suggest that convertible debt minimizes costs for firms facing high debt- and equity-related external financing costs. Theory also suggests that an appropriately designed convertible security provides efficient investment incentives. We show, however, that firms on average perform poorly following the issuance of convertible debt. The empirical evidence suggests that the efficient investment decisions predicted by theory are not in fact achieved by the actual design and issuance of convertible debt securities. An alternative interpretation of convertible debt offers is that investors ration the participation of some issuers in the seasoned equity market.

Original languageEnglish (US)
Pages (from-to)447-474
Number of pages28
JournalJournal of Corporate Finance
Volume7
Issue number4
DOIs
StatePublished - Dec 2001

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Long-run performance
Empirical analysis
Analysts' forecasts
Convertible debt
Debt
Costs
Equity
Investment decision
Investors
Equity markets
Investment incentives
Participation
Convertible securities
Empirical evidence
External financing

Keywords

  • Debt
  • Firm
  • Security

ASJC Scopus subject areas

  • Business and International Management
  • Finance
  • Economics and Econometrics
  • Strategy and Management

Cite this

The long-run performance of firms that issue convertible debt : An empirical analysis of operating characteristics and analyst forecasts. / Lewis, Craig M.; Rogalski, Richard J.; Seward, James.

In: Journal of Corporate Finance, Vol. 7, No. 4, 12.2001, p. 447-474.

Research output: Contribution to journalArticle

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