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THE INTERACTION BETWEEN PRICING AND UNDERWRITING SPREAD IN THE NEW ISSUE CONVERTIBLE DEBT MARKET
Author(s) -
Stover Roger D.
Publication year - 1983
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1983.tb00342.x
Subject(s) - underwriting , convertible bond , convertible , debt , yield (engineering) , business , econometrics , financial economics , economics , monetary economics , actuarial science , finance , engineering , materials science , structural engineering , metallurgy
The objective of this research is to measure the interaction among pricing variables in new issues of convertible debt. In underwriting convertible debt issues, there is a simultaneous tradeoff among the conversion premium, yield, and underwriting spread. Since the three endogenous variables are interrelated, a simultaneous equation model is used to test for this interaction. Based on a sample of 264 new convertible debt offerings, the results indicate underpricing in terms of conversion premium and yield as well as simultaneous increases in yield and underwriting spread.