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- Publisher Website: 10.1287/mnsc.1070.0722
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Article: Convertible bond underpricing: Renegotiable covenants, seasoning, and convergence
Title | Convertible bond underpricing: Renegotiable covenants, seasoning, and convergence |
---|---|
Authors | |
Keywords | Asset pricing Convertible bond Credit risk Finance Valuation |
Issue Date | 2007 |
Publisher | INFORMS. 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? |
Abstract | We 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 Identifier | http://hdl.handle.net/10722/85720 |
ISSN | 2023 Impact Factor: 4.6 2023 SCImago Journal Rankings: 5.438 |
ISI Accession Number ID | |
References |
DC Field | Value | Language |
---|---|---|
dc.contributor.author | Chan, AWH | en_HK |
dc.contributor.author | Chen, NF | en_HK |
dc.date.accessioned | 2010-09-06T09:08:24Z | - |
dc.date.available | 2010-09-06T09:08:24Z | - |
dc.date.issued | 2007 | en_HK |
dc.identifier.citation | Management Science, 2007, v. 53 n. 11, p. 1793-1814 | en_HK |
dc.identifier.issn | 0025-1909 | en_HK |
dc.identifier.uri | http://hdl.handle.net/10722/85720 | - |
dc.description.abstract | We 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.language | eng | en_HK |
dc.publisher | INFORMS. The Journal's web site is located at http://mansci.pubs.informs.org | en_HK |
dc.relation.ispartof | Management Science | en_HK |
dc.subject | Asset pricing | en_HK |
dc.subject | Convertible bond | en_HK |
dc.subject | Credit risk | en_HK |
dc.subject | Finance | en_HK |
dc.subject | Valuation | en_HK |
dc.title | Convertible bond underpricing: Renegotiable covenants, seasoning, and convergence | en_HK |
dc.type | Article | en_HK |
dc.identifier.openurl | http://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+Convergence | en_HK |
dc.identifier.email | Chan, AWH: awhchan@hku.hk | en_HK |
dc.identifier.authority | Chan, AWH=rp01043 | en_HK |
dc.description.nature | link_to_subscribed_fulltext | - |
dc.identifier.doi | 10.1287/mnsc.1070.0722 | en_HK |
dc.identifier.scopus | eid_2-s2.0-38549132460 | en_HK |
dc.identifier.hkuros | 144329 | en_HK |
dc.relation.references | http://www.scopus.com/mlt/select.url?eid=2-s2.0-38549132460&selection=ref&src=s&origin=recordpage | en_HK |
dc.identifier.volume | 53 | en_HK |
dc.identifier.issue | 11 | en_HK |
dc.identifier.spage | 1793 | en_HK |
dc.identifier.epage | 1814 | en_HK |
dc.identifier.isi | WOS:000251200700010 | - |
dc.publisher.place | United States | en_HK |
dc.identifier.scopusauthorid | Chan, AWH=37019602700 | en_HK |
dc.identifier.scopusauthorid | Chen, NF=7401912432 | en_HK |
dc.identifier.issnl | 0025-1909 | - |