Title page for ETD etd-192016312971890
|Type of Document
||Bremser, Albert W.
||Two Essays on Convertible Debt
||Accounting and Information Systems
|Keown, Arthur J.
|Billingsley, Randall S.
|Easterwood, John C.
|Shome, Dilip K.
- convertible debt
|Date of Defense
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
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
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