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Convertible bonds as backdoor equity financing

Jeremy C. Stein
Journal of Financial Economics 1992 32(1), 3-21 open access
This paper argues that corporations may use convertible bonds as an indirect way to get equity into their capital structures when adverse-selection problems make a conventional stock issue unattractive. Unlike other theories of convertible bond issuance, the model here highlights: 1) the importance of call provisions on convertibles and 2) the significance of costs of financial distress to the information content of a convertible issue.

Global financial markets and the risk premium on U.S. equity

K. C. Chan; G. Andrew Karolyi; René M. Stulz
Journal of Financial Economics 1992 32(2), 137-167 open access
There is a significant foreign influence on the risk premium for U.S. assets. Using a bivariate GARCH-in-mean process, we find that the conditional expected excess return on U.S. stocks is positively related to the conditional covariance of the return of these stocks with the return on a foreign index but is not related to its own conditional variance. Further, we are unable to reject the international version of the CAPM. We present evidence for different model specifications, multiple-day returns, and alternative proxies for foreign stock returns.