Long-run abnormal performance following convertible preference share and convertible bond issues: New evidence from the United Kingdom

Abstract

We study the long-run abnormal performance of a sample of U.K. firms following convertible preference share and convertible bond issues over the period 1982–1996. We are the first to study, as far as we are aware, the long-run stock price performance of firms following convertible preference share issues. Furthermore, our data set has been extracted from original sources and thus mitigates to some extent concerns about data-snooping biases. We measure long-run abnormal performances both prior to and following the issuance of convertible bonds and convertible preference shares and by the method of the issue used. Using a range of metrics to assess the robustness of long-run abnormal performance, we find evidence of pre-offer overperformance and post-offer underperformance using buy-and-hold abnormal returns (BHARs). However, post-offer underperformance is statistically significant in the case of convertible preference share issuers. Implementing a calendar-time approach, we again find underperformance for convertible preference share issuers. We do not find any evidence of long-run stock price underperformance for firms following the issuance of convertible bonds.