Abstract
This study examines the announcement effect of convertible bond issue in Korea where the issuance of convertible bonds is increasing rapidly. We find that abnormal stock returns are positive for the firms with unusual high trading volume using a sample of listed firms in Korea Stock Exchange during 2000-2015. Moreover, we show that unusual high volume around convertibles issue announcement has positive correlation with capital expenditure when firm has valuable investment opportunities. Therefore, more favorable announcement returns are driven by capital expenditure decisions and the quality of investment opportunities. In the same sense, the impact of cash flow also depends on the issuer’s quality of investment opportunities. Additionally, we confirm that issuing convertibles has negative signaling effect that stock of issuer is overvalued, and the issuer’s volatility has negative impact around announcement date.
Published Version
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