Analysis of Sequential Conversions of Convertible Bonds: A Recurrent Survival Approach

Lie-Jane Kao, Li-Shya Chen and Cheng Few Lee

Chapter 59 in Handbook of Financial Econometrics, Mathematics, Statistics, and Machine Learning:(In 4 Volumes), 2020, pp 2141-2159 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This study uses recurrent survival analysis technique to show that higher spread of conversion-stock prices and higher buy-back ratio of stock repurchase provide the CBs’ debt-like signals of Constantinides and Grundy (1989); while lower risk-free rate, higher capital expenditures, higher non-management institutional ownership and higher total asset value provide the CBs’ equity-like signals of Stein (1992). While the equity-like signals might accelerate the rate of sequential conversions and weaken the CBs’ risk-mitigating effect in the presence of risk-shifting potential, this study shows that this can happen only in a financially healthy firm with higher free cash flow. For financially distressed firms, the CBs’ risk-mitigating effect is maintained.

Keywords: Financial Econometrics; Financial Mathematics; Financial Statistics; Financial Technology; Machine Learning; Covariance Regression; Cluster Effect; Option Bound; Dynamic Capital Budgeting; Big Data (search for similar items in EconPapers)
JEL-codes: C01 C1 G32 (search for similar items in EconPapers)
Date: 2020
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