New Evidence on the Announcement Effect of Convertible and Exchangeable Bonds

This study investigates the announcement and issuance effects of offering convertible bonds and exchangeable bonds using data for the Swiss and German markets during January 1996 and May 2003. The analysis suggests that announcement effects of convertible bonds and exchangeable bonds are associated with significantly negative abnormal returns. German firms exhibit a stronger reaction than Swiss firms, possibly for institutional reasons.We also investigate the effect of the market return of the announcement effect and find that the negative abnormal returns are significantly more pronounced when previous market returns have been negative. Furthermore, we analyze the relation between the announcement effects and equity components by controlling for the equity signal sent to the market. We find the size of the equity component of an issue to have a strong influence on the announcement effect for convertible but not for exchangeable securities and offer an explanation for this difference.

http://www.manuel-ammann.com/pdf/CBExBAnnouncements.pdf