An analysis of risk changes surrounding French convertible bond offerings

Khalid Elbadraoui, Jean-Jacques Lilti () and Bouchra M'Zali
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Khalid Elbadraoui: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique
Jean-Jacques Lilti: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique
Bouchra M'Zali: UQAM - Université du Québec à Montréal = University of Québec in Montréal

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Abstract: This paper analyzes risk adjustment within the context of French convertible bond (hereafter CB) financing decision. It aims at examining the possibility that the poor long-run stock price performance experienced by French CB issuers after the offering may be caused by an unexpected change in their risk. The results arising from our study failed to provide any evidence that issuers' equity systematic risk is modified subsequent to CB offering, even though this increases financial leverage later. This evidence is inconsistent with the hypothesis of attributing the long-run under-performance of CB issuers to the failure of matched-firm technique to provide a proper control for the dynamics of systematic risk surrounding the issuance. Consequently, our findings give additional support to the "under-reaction" hypothesis. On the other hand, both idiosyncratic and total risk increase significantly in the period following a CB issue. This increase is at least partially related to corresponding changes in the issuer's industry conditions.

Keywords: Convertible bond offerings; financial leverage; systematic risk; idiosyncratic risk.; idiosyncratic risk (search for similar items in EconPapers)
Date: 2010-07
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Published in Bankers Markets & Investors : an academic & professional review, 2010, 107, pp.1-16

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00493920

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