| The goal of my three dissertation papers is to examine the role of asymmetric information in exchangeable debt offerings. Exchangeable debt is debt that a buyer can exchange into common shares of a company other than the firm that originally issued the bonds.; In my first essay I empirically investigate whether issuing firms can time exchangeable debt offerings. Consistent with my information-based market-timing argument, I find that companies tend to raise cash with exchangeable debt soon after the underlying stock has appreciated and I find that the price of the underlying asset falls after the exchangeable debt is issued. I also find that different exchangeable debt payoff structures convey different degrees of negative information about the underlying firm. Moreover, an exchangeable debt issue signals the prospective open market sale of the underlying shares by the issuer.; In my second essay I provide further evidence on investor behavior and expectation around security issues by examining long-run stock returns following exchangeable debt offerings. I document substantial long-run underperformance for the underlying firms in exchangeable debt offerings between 1981 and 2001. The underperformance is more severe for those in a cash-type exchangeable debt than those in a mixed-type exchangeable debt.; Third essay shows that a firm's choice of the underlying equity to package with an exchangeable debt issue is not random. Among several equity investments in various firms prior to an exchangeable debt offering, issuers select the holding with operating performance that is significantly better than comparable firms in its industry. Following the ED offer, the performance declines to or below the industry average. Conversely, other holdings exhibit improvement in their operating performance after the issue. Furthermore, the holding with the worst subsequent performance has the highest probability of being chosen for the exchangeable debt offering. If subsequent performance is correlated with the degree to which the issuing firm's managers believe the holding is overvalued, results imply that exchangeable debt issues are conducted to sell temporarily overvalued equity. |
