 Cash-settled convertible bonds and the value relevance of their accounting treatmentCraig Lewis and Patrick Verwijmeren Journal of Corporate Finance, 2014, vol. 24, issue C, 101-111 Abstract: Cash settlements became a popular design feature in convertible securities once they obtained favorable accounting treatment for diluted earnings per share in 2002. The unexpected proliferation of cash settlements provoked the FASB to eliminate their favorable accounting treatment in 2008. We find that shareholders of firms that use cash-settled convertibles react negatively to the announcement of these recent changes. Firms that issued cash-settled convertible debt to avoid earnings dilution no longer have an incentive to keep them on their balance sheets. Consistent with this observation, we find that investors respond more favorably if the cash-settled convertibles of these firms include call features. We conclude that call features can be valuable in times of uncertainty related to possible accounting changes as they allow the firm to efficiently mitigate the effects of the accounting changes on their financial reporting. Keywords: Convertible securities; Cash settlements; Call features; Earnings management; Economic consequences of accounting changes (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:24:y:2014:i:c:p:101-111 DOI: 10.1016/j.jcorpfin.2013.06.003 Access Statistics for this article Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter More articles in Journal of Corporate Finance from Elsevier |
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