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New studies in convertible bond investment and financing

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New studies in convertible bond investment and financing

Liu, Jinlin (2009) New studies in convertible bond investment and financing. PhD thesis, Concordia University.

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Abstract

This series of paper studies convertible bond financing from the perspective of both issuers and investors. Based on an empirical study, convertible bond financing seems to be overused: it would appear that convertible bond financing should be dominated by sequential issues of straight bonds followed by new equity issues sometime thereafter. A new model is introduced to demonstrate that managers of all types of firms, irrespective of quality would choose convertible bonds in their financing plans when facing uncertainties about the timing of the project. Convertible bond issuance can be optimal for firms that do not have an established record of strong historical performance but have opportunity sets that include good projects subject to timing uncertainties. The first part of this study focuses on the investor perspective and investigates the returns of holding convertibles/underlying stocks, as well as the returns of convertible hedging strategies. Naked long position of convertible bonds from issuance date and hedging based on the characteristics of convertibles can derive good returns. Consequently, investors can benefit from both the upside expectation of convertible issuing firms and the structured terms of convertibles. Next, convertible bonds are studied from the perspective of issuer. Here, liquidity risk, firm risk, and issue risk premium factors are identified as determinants of abnormal returns around the convertible bond issue dates. The market responds favorably to firm volatility risk, but negatively to the liquidity risk and issue risk premium factors. The cumulative effects of these risks determine the abnormal returns of convertible bonds

Divisions:Concordia University > John Molson School of Business
Item Type:Thesis (PhD)
Authors:Liu, Jinlin
Pagination:ix, 157 leaves : ill. ; 29 cm.
Institution:Concordia University
Degree Name:Theses (Ph. D.)
Program:John Molson School of Business
Date:2009
Thesis Supervisor(s):Switzer, Lorne
ID Code:976635
Deposited By: Concordia University Library
Deposited On:22 Jan 2013 16:30
Last Modified:18 Jan 2018 17:42
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