This paper tests the Kim (Journal of Financial and Quantitative Analysis, 25 (2) (1990) 229-243) 'Informative Conversion Ratios' hypothesis. The Kim theory predicts that the conversion price of a convertible note issue will determine whether the issue is similar to debt or similar to equity. A convertible note with a low conversion price is similar to equity under the Kim theory whilst a convertible note with a high conversion price is similar to debt. Expected time to at-the-money was used throughout this paper as an adjusted conversion price. Observation of a strong positive relation between announcement period abnormal returns and expected time to at-the-money for a sample of Australian convertible note issue announcements supports the Kim theory.
|Number of pages
|Journal of Multinational Financial Management
|Published - Sept 1998
- Convertible notes
- Event study