Title page for ETD etd-192016312971890

Type of Document Dissertation
Author Bremser, Albert W.
URN etd-192016312971890
Title Two Essays on Convertible Debt
Degree PhD
Department Accounting and Information Systems
Advisory Committee
Advisor Name Title
Keown, Arthur J. Committee Chair
Billingsley, Randall S. Committee Member
Easterwood, John C. Committee Member
Kumar, Raman Committee Member
Shome, Dilip K. Committee Member
  • security
  • convertible debt
  • equity
Date of Defense 1997-03-25
Availability unrestricted
This dissertation examines two different topics related to the issuance of a convertible debt security. The first essay addresses the question of how managers set the equity value in a convertible debt issue. A convertible debt security has value derived from an equity component and a debt component. As a result, managers must decide how much of the convertible debt's value will be derived from equity at issuance. I examine three hypotheses in addressing this question. Empirical evidence is provided supporting the assertion that managers issue more equity-like debt when the firm will have lower future operating performance and a greater potential for underinvestment. Empirical support is not found for managers take into consideration asset substitution concerns when setting the equity value in a convertible debt issue.

The second essay examines why are abnormal returns negative for the equity during the convertible debt's issuance period. This has been documented by Dann and Mikkelson (1984), Mikkelson and Partch (1986, 1988), and also by this dissertation. I furnish evidence that is consistent with a bid-ask spread bias not causing the negative equity abnormal returns during the issuance period of a convertible debt security. Tests are also performed that provide results that are consistent with the issue period returns being partially due to a resolution of uncertainty.

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