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CONVERTIBLE SECURITIES AND HETEROGENEITY OF INVESTOR BELIEFS
Author(s) -
Jiao Jie,
Yan An
Publication year - 2015
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/jfir.12059
Subject(s) - bond , business , convertible bond , monetary economics , convertible , financial economics , cash , economics , finance , structural engineering , engineering
We conjecture that convertibles can better attract investors with different beliefs about a firm's future cash flows compared to straight bonds and stocks. Our empirical findings are consistent with this conjecture. We find that a firm is more likely to issue convertibles rather than seasoned stocks and straight bonds in the public markets when investors' beliefs are more heterogeneous. The positive effect of heterogeneous beliefs on the relative likelihood of convertibles is greater when investors are more optimistic. Overall, our findings provide a novel rationale based on investors' heterogeneous beliefs for the use of convertibles in corporate external financing decisions.