Grundy, B. D., Veld, C., Verwijmeren, P. and Zabolotnyuk, Y. (2014) Why are conversion-forcing call announcements associated with negative wealth effects? Journal of Corporate Finance, 24, pp. 149-157. (doi: 10.1016/j.jcorpfin.2013.10.003)
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Publisher's URL: http://dx.doi.org/10.1016/j.jcorpfin.2013.10.003
Abstract
We analyze call announcement returns taking into account two recent developments in the convertible bond market: the inclusion of dividend protection clauses in convertibles' terms, and the high fraction of convertible issues purchased by hedge funds. Calls of dividend-protected convertible bonds are predictable, yet we still observe a negative stock price reaction that cannot be explained by signaling. Greater hedge fund involvement prior to a call means less short selling in response to the call and we document a reduced price reaction. We conclude that price pressure and not signaling underlies the negative announcement effect of convertible bond calls.
| Item Type: | Articles |
|---|---|
| Status: | Published |
| Refereed: | Yes |
| Glasgow Author(s) Enlighten ID: | Zabolotnyuk, Dr Yuriy and Veld, Professor Chris and Verwijmeren, Professor Patrick |
| Authors: | Grundy, B. D., Veld, C., Verwijmeren, P., and Zabolotnyuk, Y. |
| College/School: | College of Social Sciences > Adam Smith Business School > Accounting and Finance |
| Journal Name: | Journal of Corporate Finance |
| Publisher: | Elsevier |
| ISSN: | 0929-1199 |
| ISSN (Online): | 1872-6313 |
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