Abstract
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.
| Original language | English |
|---|---|
| Pages (from-to) | 303-315 |
| Number of pages | 13 |
| Journal | Journal of Multinational Financial Management |
| Volume | 8 |
| Issue number | 2-3 |
| Publication status | Published - Sept 1998 |
Keywords
- Convertible notes
- Event study
- G14
- G32
- Signalling