Systematic equity risk change around convertible debt offerings

This study investigates Systematic Equity Risk Change of a firm when it issues convertible bonds by studying the change in beta before and after the issuance of convertible bonds. Descriptive statistics provide the evidence that the systematic equity risk declines slightly after a firm has issued convertible debt, while the systematic equity risk was low both before and after issuance. However, both the T test and Wilcoxon signed-rank test of the paired-samples show that there appears to be no significant change in the systematic equity risk after a firm has issued convertible bonds. Although the conclusion is different from previous studies, it is consistent with and gives further support to the conjecture that firms try to stabilize the level of systematic risk of their common stock. Moreover, our results have implications for existing theories and suggest that it is important to consider possible risk changes when examining the issuance effects of offering convertible bonds.