Title

Is a convertible bond call really bad news?

Publication Type

Journal Article

Publication Date

7-2001

Abstract

The article tests and rejects the hypothesis that managers call in-the-money convertibles when they view a decline in the value of the firm as likely. Inconsistent with this view, it finds that insiders generally buy equity before conversion-forcing calls. Also, analysts tend to raise their earnings forecasts following a call. There is no evidence that earnings analysts interpret a conversion-forcing call as bad news. Indeed there is evidence that, relative to firms in general, analysts are revising their earnings forecasts upward in the months surrounding conversion-forcing calls. The article concludes that an announcement of a conversion-forcing call of a firm's convertible bonds is accompanied by a small decline in the price of the firm's common equity.

Discipline

Finance and Financial Management | Portfolio and Security Analysis

Research Areas

Finance

Publication

Journal of Business

Volume

74

Issue

3

First Page

459

Last Page

476

ISSN

0021-9398

Identifier

10.1086/321934

Publisher

University of Chicago

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

http://www.jstor.org/stable/10.1086/321934