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Private placements of convertible securities: stock returns, operating performance and abnormal accruals
Author(s) -
Williams Jan L.,
Tang Alex P.
Publication year - 2009
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.2009.00311.x
Subject(s) - convertible , accrual , stock (firearms) , certification , private placement , business , monetary economics , accounting , economics , econometrics , finance , investment banking , management , earnings , mechanical engineering , structural engineering , engineering
Abstract This study examines long‐run stock returns, operating performance and abnormal accruals of private placements of convertible securities. We investigate the effects surrounding private placements to test and differentiate the implications of several competing hypotheses. While the monitoring and certification hypotheses suggest positive effects, the managerial entrenchment, overvaluation and windows‐of‐opportunity hypotheses suggest the opposite. We find that placing firms generally experience positive effects in the pre‐periods and negative effects in the post‐periods. Our overall findings are more consistent with the predictions of the overvaluation and windows‐of‐opportunity hypotheses while our post‐placement evidence is also consistent with the predictions of the managerial entrenchment hypothesis.