Convertible Securities in Merger Transactions and the Resolution of the Double-Sided Asymmetric Information Problem
This paper provides a rationale for the use of convertible securities as the medium of exchange in corporate change-of-control transactions. We argue that convertible securities can resolve the information asymmetry about the bidders value while at the same time mitigating the information asymmetry about the targets value. In contrast, deals with cash or stock can only address one information asymmetry or the other but not both. We furnish empirical support for the use of convertible securities to resolve the double-sided asymmetric information problem. We find that a bidder is more likely to offer convertible securities, rather than all cash or all stock, when both the bidder and its target face large asymmetric information problems. We also find that convertibles are more likely to be offered in a takeover to deal with the asymmetric information problem on one side of the transaction (either the bidder side or the target side) only when the other side of the transaction also has a large information asymmetry. Finally, as expected from our double-sided asymmetric information rationale, we find that bidders in convertible deals enjoy larger abnormal stock returns around takeover announcements than bidders in all-cash and allstock deals, but that targets in convertible deals experience smaller abnormal stock returns than targets in all-cash and all-stock deals.
国际会议
大连
英文
1-52
2008-07-02（万方平台首次上网日期，不代表论文的发表时间）