The long-run operating performance of canadian convertible debt issuers : trends and explanatory factors

International audienceSimilar to previously documented evidence for equity offerings, this paper shows, using accounting-based performance measures, that Canadian firms exhibit a poor operating performance following convertible bond offers. These results confirm those obtained in the US context and contribute to explain the puzzling post-issue stock price underperformance of convertible bond issuers. Our findings also illustrate that the decline in operating performance experienced by the issuing firms seems to be partly due to industry specific factors. In addition, using PLS regressions, we find that some issuer and issue features have a significant impact on the issuers' performance. Nevertheless, the signs of the regression coefficients are not always congruent with those predicted by convertible bond financing theories. Lastly, our empirical findings support the capital rationing hypothesis of Lewis et al. (2001) according to which firms rely on convertible bonds because they are rationed out of the equity market due to adverse selection and agency costs considerations