Kauppakorkeakoulun julkaisuportaali
Aalto-yliopiston kauppakorkeakoulun gradujen tiedot nyt Aaltodocissa: Aaltodoc-julkaisuarkisto
Kauppakorkeakoulu | Laskentatoimen ja rahoituksen laitos | Rahoitus | 2009
Tutkielman numero: 12119
Underpricing in convertible bond offerings - An empirical analysis of pricing determinants, trends and equity-likeness
Tekijä: Koponen, Anssi
Otsikko: Underpricing in convertible bond offerings - An empirical analysis of pricing determinants, trends and equity-likeness
Vuosi: 2009  Kieli: eng
Laitos: Laskentatoimen ja rahoituksen laitos
Aine: Rahoitus
Asiasanat: rahoitus; financing; arvopaperimarkkinat; stock exchange markets; hinnoittelu; pricing
Sivumäärä: 106
Avainsanat: rahoitus; financing; convertible bonds; vaihtovelkakirjat; fundraising; varainhankinta; pricing; hinnoittelu
PURPOSE OF THE STUDY This thesis studies pricing of convertible bond offerings and whether convertible bond offerings are sold to investors below market value. First, I analyze if the underpricing is higher when issuing company is offering convertibles to the public for the first time. Determinants of underpricing are studied in more detail by examining if offerings’ equity-likeness or various theories derived mainly from equity IPO literature have explanatory power in underpricing. Finally, I analyze development of convertible bond offerings over time and test if changes in equity-likeness of the offerings contribute to potential changes in the level of underpricing.

DATA Main sample used in the study comprises European convertible bond offerings sold to public in 1.1.2002–31.12.2007. Information on the offerings and issuing companies is gathered from Thomson Financial SDC database, Bloomberg Professional service and company web pages. Secondary market data for the bonds are retrieved from Bloomberg. Thomson Financial Datastream database is used as a source of market index information.

The final sample consists of 129 convertible bond offerings by 112 companies. 72 of the offerings are initial public offerings and 57 seasoned offerings of convertible bonds. In addition, I use data set of Savikko’s (2002) Master’s thesis. The supplementary data set comprises 90 European convertible bond offerings conducted between October 1998 and September 2001.

RESULTS The thesis shows that European convertible bond offerings are underpriced by 1.13%, on average, and that mean amount of money left on the table in an offering equals €4.0 million. There are no significant differences in underpricing of initial public offerings and seasoned offerings of convertibles, but debt-like convertible offerings are revealed to be more underpriced when the offering is first time public offering of any bonds by the issuer. I also show that underpricing of rated offerings is related to future rating revisions and previous bookbuilding processes. I interpret the findings as an indication of informational asymmetries driving the underpricing phenomenon.

Furthermore, it is found that underpricing is positively related to systematic risk of the offerings. As for development of the offerings, the results indicate that in 2001-2005 underpricing was slightly lower than in 1999-2000. Although I provide strong evidence that convertibles have become more debt-like after the Millennium, change in equity-likeness has not influenced magnitude of underpricing in the offerings.
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