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The Valuation Effects of Private Placements of Convertible Debt

Authors

  • L. PAIGE FIELDS,

  • ERIC L. MAIS

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    • Department of Finance, University of Arizona, and Department of Finance, University of Hawaii, respectively. We are grateful for comments and suggestions provided by David Mayers, René M. Stulz, Kent T. Fields, William T. Moore, Patricia B. Peat, Ralph E. Viator, Michael S. Wilkins, and an anonymous referee.

ABSTRACT

Share price reactions to announcements of 61 private placements of convertible debt securities are investigated and a significant positive average abnormal return of 1.80% is documented. This unique result contrasts with the negative average abnormal return associated with public sales of convertible debt securities. The positive effect on common shareholders' wealth appears to be related to the relative size of the private issue and unrelated to the degree to which the convertible bond is “out-of-the-money” at issuance.

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