Journal of Corporate Finance Vol. 24 2014
Why are conversion-forcing call announcements associated with negative wealth effects?
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.
- DOI
- 10.1016/j.jcorpfin.2013.10.003
- Volume
- 24
- Pages
- 149-157
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref