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In: Business and Management

Submitted By hat16
Words 911
Pages 4
Hussein Tawil
Presented to Dr. Assem Saffieddine

The Long Run Performance of Convertible Debt Issuers

As convertible debt has become a major source of financing in USA, a study was performed to examine the long run operating performance and stock price performance of 828 convertible debt issuers relative to matched, non-issuing firms, which serve as a benchmark to compare and analyze the attained results from the study.
The selected firms to conduct this study meet specific conditions, for example, the availability of the firms balance sheet, stock price and convertible debt data; a maximum of 1 convertible debt offer is included per year, and the firm’s stock should be listed on NYSE, AMEX, or NASDAQ.
To measure the long run operating performance, pre-tax operating cash flow (EBIT) were used instead of net earnings (NI) as taxes and interest can obscure the operating performance, which is the focus of the study, in addition, the operating cash flows represent the economic benefits represented by the firm. The duration picked for the study was the year of the issuance, in addition to 3 years prior and the 3 years after the issuance, making it a total of 7.
The operating performance was then analyzed by studying the performance relative to the year before the offering of the convertible debt (year -1), it was shown that there is an improvement of operating performance before the issuance but a large decline in the short period after it.
Looking at this from the stock price perspective, the study intercepted how the stock price of the issuing form performed 1 year pre and 3 years post the issuing, after comparing them with matching non issuing companies, similarly to operating performance results, the issuing firm outperforms the benchmark firm before the issuance but falls behind after the issuance.
In conclusion, convertible debt issuing firms…...

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