Abstract
As of now, very few research studies have examined the effects of financial constraints on the short- and long-term performances of companies after their announcement of convertible bonds. Due to asymmetric information, previous studies consider issuance of convertible bonds as negative news. As a result, the short- and long-term performances of companies generally decline after their convertible bond announcement. This study argues that when companies have investment plans, they are expected to have higher future cash flows. They will become increasingly more valuable regardless of the fact that they raise funds through the issue of convertible bonds (due to financial constraints), positively affecting the performance of companies. The results indicate that financial constraints have no effect on short-term performance, but did have a significantly positive impact on the long-term performance of companies after their issuance of convertible bonds.
Highlights
The aim of this study is to investigate the relationship between the announcement of issuing convertible bonds and the stock price performance of a company with financial constraints
If cumulative abnormal returns (CAR) is influenced by financial constraint, the coefficient β1 will be statistically significant. β1 is expected to be positive. This implies that companies with financial constraints tend to raise their funds by issuing convertible bonds that have a positive influence on innovation and investment activities, which in turn are expected to have higher future cash flows and increases in asset value
Stock performance becomes poor after the announcement of convertible bonds
Summary
The previous literature has pointed out that financial constraints significantly influence companies. Very few studies have been done examining the effects of financial constraints on the short- and long-term performance of companies after their announcement of issuing convertible bonds. The aim of this study is to investigate the relationship between the announcement of issuing convertible bonds and the stock price performance of a company with financial constraints. This study argues that companies with financial constraints tend to raise their funds by issuing convertible bonds that have a positive influence on innovation and investment activities, which in turn are expected to cause higher future cash flows and increases in asset value. The objective of this study is to investigate the effects of financial constraints on the short- and long-term performances of companies after their announcement of convertible bond issuance.
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
