Are There Windows of Opportunity for Convertible Debt Issuance? Evidence for Western Europe

This paper hypothesizes that hot convertible debt windows represent periods with lower convertible debt-related financing costs. Supporting this premise, we find that the stock price impact of Western European convertible debt announcements is significantly less negative during hot convertible windows. Importantly, this result holds while controlling for equity market, straight debt market and macroeconomic conditions. In addition, stockholders are less sensitive to issuer- and issue-specific financing costs during hot convertible markets. Overall, these findings indicate that hot convertible markets represent windows of opportunity for convertible debt issuance. Firms with high idiosyncratic financing costs act accordingly by timing their convertible offering during a hot market.