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題 名 | Efficiency of the Stock Markets at the Issuance of Convertible Debt in the USA and India |
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作 者 | Mahajan, Y. Lal; | 書刊名 | Academy of Taiwan Business Management Review |
卷 期 | 4:2 2008.08[民97.08] |
頁 次 | 頁93-103 |
分類號 | 563.54 |
關鍵詞 | |
語 文 | 英文(English) |
英文摘要 | This paper examines the effects on the value of the firm at the issuance of convertible debt in an electronically developed country, like USA and less developed counterpart, like India. Since the convertible debt is a combination of straight debt and an option, we theorize that the signaling effect coupled with tax benefits of only debt is increased. In addition, this positive effect is heightened because of decrease in agency costs usually associated with straight debt resulting in positive abnormal returns to the stockholders[1]. This effect may be exacerbated in less developed countries because of less efficient capital and stock markets. We examine this theory empirically using convertible data for the USA and India. In addition, we also examine the effect of different conversion ratios on the stock market both in India and the U.S. We found that instead of positive abnormal returns as theoretically hypothesized accruing to the stockholders, they lose their wealth by a significant amount at the announcement of convertible debt casting doubt on a) signaling hypothesis, b) tax benefit hypothesis, and c) agency cost hypothesis. These negative abnormal returns may be due to the asymmetric information at the issuance of convertible debt. Secondly, the effect on the value of stocks is delayed by four to five days in less developed country, like India but is instantaneous in developed countries, like the U.S. signifying that the capital markets may be less efficient in India than in the U.S. |
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