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Article: Convertible bond underpricing: Renegotiable covenants, seasoning, and convergence

TitleConvertible bond underpricing: Renegotiable covenants, seasoning, and convergence
Authors
KeywordsAsset pricing
Convertible bond
Credit risk
Finance
Valuation
Issue Date2007
PublisherINFORMS. The Journal's web site is located at http://mansci.pubs.informs.org
Citation
Management Science, 2007, v. 53 n. 11, p. 1793-1814 How to Cite?
AbstractWe investigate the long-standing puzzle on the underpricings of convertible bonds. We hypothesize that the observed underpricing is induced by the possibility that a convertible bond might renegotiate on some of its covenants, e.g., an imbedded put option in financial difficulties. Consistent with our hypothesis, we find that the initial underpricing is larger for lower rated bonds. The underpricing worsens if the issuer experiences subsequent financial difficulties. However, conditional on no rating downgrades, our main empirical result shows that convertible bond prices do converge to their theoretical prices within two years. This seasoning period is shorter for higher rated convertible bonds. © 2007 INFORMS.
Persistent Identifierhttp://hdl.handle.net/10722/85720
ISSN
2015 Impact Factor: 2.741
2015 SCImago Journal Rankings: 4.384
ISI Accession Number ID
References

 

DC FieldValueLanguage
dc.contributor.authorChan, AWHen_HK
dc.contributor.authorChen, NFen_HK
dc.date.accessioned2010-09-06T09:08:24Z-
dc.date.available2010-09-06T09:08:24Z-
dc.date.issued2007en_HK
dc.identifier.citationManagement Science, 2007, v. 53 n. 11, p. 1793-1814en_HK
dc.identifier.issn0025-1909en_HK
dc.identifier.urihttp://hdl.handle.net/10722/85720-
dc.description.abstractWe investigate the long-standing puzzle on the underpricings of convertible bonds. We hypothesize that the observed underpricing is induced by the possibility that a convertible bond might renegotiate on some of its covenants, e.g., an imbedded put option in financial difficulties. Consistent with our hypothesis, we find that the initial underpricing is larger for lower rated bonds. The underpricing worsens if the issuer experiences subsequent financial difficulties. However, conditional on no rating downgrades, our main empirical result shows that convertible bond prices do converge to their theoretical prices within two years. This seasoning period is shorter for higher rated convertible bonds. © 2007 INFORMS.en_HK
dc.languageengen_HK
dc.publisherINFORMS. The Journal's web site is located at http://mansci.pubs.informs.orgen_HK
dc.relation.ispartofManagement Scienceen_HK
dc.subjectAsset pricingen_HK
dc.subjectConvertible bonden_HK
dc.subjectCredit risken_HK
dc.subjectFinanceen_HK
dc.subjectValuationen_HK
dc.titleConvertible bond underpricing: Renegotiable covenants, seasoning, and convergenceen_HK
dc.typeArticleen_HK
dc.identifier.openurlhttp://library.hku.hk:4550/resserv?sid=HKU:IR&issn=0025-1909&volume=53 no11&spage=1793&epage=1814&date=2007&atitle=Convertible+Bond+Underpricing:+Renegotiable+Covenants,+Seasoning+and+Convergenceen_HK
dc.identifier.emailChan, AWH: awhchan@hku.hken_HK
dc.identifier.authorityChan, AWH=rp01043en_HK
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1287/mnsc.1070.0722en_HK
dc.identifier.scopuseid_2-s2.0-38549132460en_HK
dc.identifier.hkuros144329en_HK
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-38549132460&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume53en_HK
dc.identifier.issue11en_HK
dc.identifier.spage1793en_HK
dc.identifier.epage1814en_HK
dc.identifier.isiWOS:000251200700010-
dc.publisher.placeUnited Statesen_HK
dc.identifier.scopusauthoridChan, AWH=37019602700en_HK
dc.identifier.scopusauthoridChen, NF=7401912432en_HK

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