Table AI.

Variable definitions

The following describes how each variable is measured. Italicized names in parentheses are Compustat variable names.

VariablesDefinitions
Dependent variables
Offering discounts (in%)Offering discounts in percentage are measured as the difference between theoretical and offering prices over theoretical prices, and are winsorized at the 1st and 99th percentiles. Theoretical prices are calculated using the method of TF, a binomial approach. Inputs used in the model are described in detail in Section 3.2.
HF buyersNumber of hedge funds buyers who are identified as hedge funds from the full list of hedge fund managers in Bloomberg, Lipper TASS, and Hedge Fund Research (HFR) databases. Log(HF buyers) is the natural log of the number of hedge funds buyers.
Total buyersNumber of buyers identified from registration statements available at the SEC’s Edgar database as in Brown et al. (2012). Log(Total buyers) is the natural log of the number of all buyers.
Main explanatory variables
OptionA dummy variable to indicate that stock options are available for trading at the time of convertible issuance. It is set to be one if the option trading data are available for the issuer in OptionMetrics in the month of the convertible issue date.
Bond characteristics
DeltaA measure of the sensitivity of the convertible bond price to a stock price movement. The exact definition is described in Section 2.2.
Proceeds/MVAmount of capital raised at a convertible bond offering over the market capitalization (csho × prcc_f) at the end of fiscal year prior to the announcement of a convertible bond offering.
MaturityMaturity of a bond in number of years.
Combined offeringA dummy variable to indicate combined offerings with a concurrent buyback announcement (or an intention to use the proceeds to buy back shares) within the window of 11 days around the convertible bond announcement date
Rule 144AA dummy variable to indicate a Rule 144A private placement offering.
RatedA dummy variable to indicate offerings with an available S&P credit rating
Investment gradeA dummy variable to indicate offerings with an investment grade credit rating (an S&P credit rating of BBB or higher)
Firm characteristics
Log(Assets)Natural log of total assets of a firm (at) at the fiscal year end prior to the announcement of convertible bond issuance.
Market-to-bookMarket-to-book asset ratio that is defined as total assets (at) plus market value of equity (csho × prcc_f) minus book value of equity (ceq) divided by total assets (at) as of the fiscal year end prior to a convertible announcement date.
VolatilityVolatility is defined as the daily stock return volatility calculated using stock returns over the window [–240, –40] relative to a convertible bond offering announcement date.
Amihud × 106An illiquidity measure based on Amihud (2002) times 1,000,000. It is calculated as the average absolute value of daily stock returns over trading volume in millions during the window [–120, –20] relative to a convertible bond offering announcement date.
Nasdaq listingA dummy variable to indicate issuers listed in the Nasdaq.
Analyst coverageNumber of financial analysts covering the offering firm, which is collected from the IBES database.
Post-issuance bond characteristics
DeltaConvertible delta numerically computed with a 5% change of stock price, as explained in Section 2.2, at the end of a month.
Absolute moneynessAbsolute value of moneyness measured by the natural logarithm of the ratio of the month-end share price of the underlying stock to the conversion price (as in Van Marle and Verwijmeren, 2017).
Log(TTC)Natural logarithm of the time to first call date (in years) from a given month.
Log(TTM)Natural logarithm of the time until maturity (in years) from a given month.
Stock volatility (monthly)Standard deviation of historical daily stock returns measured over a moving window of [–240; –40] prior to a month-end.
Amihud × 106 (monthly)Amihud (2002) illiquidity measure calculated using a moving window [–120, –20] prior to a month-end.
Bond trading volumeNatural logarithm of the total dollar trading volume of the convertible during a given month.
Fuzzy RDD-related variables
Price distanceDifference between the average stock price during 3 months from the beginning of the calendar year of an offering announcement and the minimum stock price of $3.0 ($7.5 until 2004) required by the SEC for option listing as specified in Equation (1).
EligibleA dummy variable to indicate that “Price distance” of the offering firm is positive and therefore, the offering firm is likely to be eligible for listing of options written on its stock.
VariablesDefinitions
Dependent variables
Offering discounts (in%)Offering discounts in percentage are measured as the difference between theoretical and offering prices over theoretical prices, and are winsorized at the 1st and 99th percentiles. Theoretical prices are calculated using the method of TF, a binomial approach. Inputs used in the model are described in detail in Section 3.2.
HF buyersNumber of hedge funds buyers who are identified as hedge funds from the full list of hedge fund managers in Bloomberg, Lipper TASS, and Hedge Fund Research (HFR) databases. Log(HF buyers) is the natural log of the number of hedge funds buyers.
Total buyersNumber of buyers identified from registration statements available at the SEC’s Edgar database as in Brown et al. (2012). Log(Total buyers) is the natural log of the number of all buyers.
Main explanatory variables
OptionA dummy variable to indicate that stock options are available for trading at the time of convertible issuance. It is set to be one if the option trading data are available for the issuer in OptionMetrics in the month of the convertible issue date.
Bond characteristics
DeltaA measure of the sensitivity of the convertible bond price to a stock price movement. The exact definition is described in Section 2.2.
Proceeds/MVAmount of capital raised at a convertible bond offering over the market capitalization (csho × prcc_f) at the end of fiscal year prior to the announcement of a convertible bond offering.
MaturityMaturity of a bond in number of years.
Combined offeringA dummy variable to indicate combined offerings with a concurrent buyback announcement (or an intention to use the proceeds to buy back shares) within the window of 11 days around the convertible bond announcement date
Rule 144AA dummy variable to indicate a Rule 144A private placement offering.
RatedA dummy variable to indicate offerings with an available S&P credit rating
Investment gradeA dummy variable to indicate offerings with an investment grade credit rating (an S&P credit rating of BBB or higher)
Firm characteristics
Log(Assets)Natural log of total assets of a firm (at) at the fiscal year end prior to the announcement of convertible bond issuance.
Market-to-bookMarket-to-book asset ratio that is defined as total assets (at) plus market value of equity (csho × prcc_f) minus book value of equity (ceq) divided by total assets (at) as of the fiscal year end prior to a convertible announcement date.
VolatilityVolatility is defined as the daily stock return volatility calculated using stock returns over the window [–240, –40] relative to a convertible bond offering announcement date.
Amihud × 106An illiquidity measure based on Amihud (2002) times 1,000,000. It is calculated as the average absolute value of daily stock returns over trading volume in millions during the window [–120, –20] relative to a convertible bond offering announcement date.
Nasdaq listingA dummy variable to indicate issuers listed in the Nasdaq.
Analyst coverageNumber of financial analysts covering the offering firm, which is collected from the IBES database.
Post-issuance bond characteristics
DeltaConvertible delta numerically computed with a 5% change of stock price, as explained in Section 2.2, at the end of a month.
Absolute moneynessAbsolute value of moneyness measured by the natural logarithm of the ratio of the month-end share price of the underlying stock to the conversion price (as in Van Marle and Verwijmeren, 2017).
Log(TTC)Natural logarithm of the time to first call date (in years) from a given month.
Log(TTM)Natural logarithm of the time until maturity (in years) from a given month.
Stock volatility (monthly)Standard deviation of historical daily stock returns measured over a moving window of [–240; –40] prior to a month-end.
Amihud × 106 (monthly)Amihud (2002) illiquidity measure calculated using a moving window [–120, –20] prior to a month-end.
Bond trading volumeNatural logarithm of the total dollar trading volume of the convertible during a given month.
Fuzzy RDD-related variables
Price distanceDifference between the average stock price during 3 months from the beginning of the calendar year of an offering announcement and the minimum stock price of $3.0 ($7.5 until 2004) required by the SEC for option listing as specified in Equation (1).
EligibleA dummy variable to indicate that “Price distance” of the offering firm is positive and therefore, the offering firm is likely to be eligible for listing of options written on its stock.
Table AI.

Variable definitions

The following describes how each variable is measured. Italicized names in parentheses are Compustat variable names.

VariablesDefinitions
Dependent variables
Offering discounts (in%)Offering discounts in percentage are measured as the difference between theoretical and offering prices over theoretical prices, and are winsorized at the 1st and 99th percentiles. Theoretical prices are calculated using the method of TF, a binomial approach. Inputs used in the model are described in detail in Section 3.2.
HF buyersNumber of hedge funds buyers who are identified as hedge funds from the full list of hedge fund managers in Bloomberg, Lipper TASS, and Hedge Fund Research (HFR) databases. Log(HF buyers) is the natural log of the number of hedge funds buyers.
Total buyersNumber of buyers identified from registration statements available at the SEC’s Edgar database as in Brown et al. (2012). Log(Total buyers) is the natural log of the number of all buyers.
Main explanatory variables
OptionA dummy variable to indicate that stock options are available for trading at the time of convertible issuance. It is set to be one if the option trading data are available for the issuer in OptionMetrics in the month of the convertible issue date.
Bond characteristics
DeltaA measure of the sensitivity of the convertible bond price to a stock price movement. The exact definition is described in Section 2.2.
Proceeds/MVAmount of capital raised at a convertible bond offering over the market capitalization (csho × prcc_f) at the end of fiscal year prior to the announcement of a convertible bond offering.
MaturityMaturity of a bond in number of years.
Combined offeringA dummy variable to indicate combined offerings with a concurrent buyback announcement (or an intention to use the proceeds to buy back shares) within the window of 11 days around the convertible bond announcement date
Rule 144AA dummy variable to indicate a Rule 144A private placement offering.
RatedA dummy variable to indicate offerings with an available S&P credit rating
Investment gradeA dummy variable to indicate offerings with an investment grade credit rating (an S&P credit rating of BBB or higher)
Firm characteristics
Log(Assets)Natural log of total assets of a firm (at) at the fiscal year end prior to the announcement of convertible bond issuance.
Market-to-bookMarket-to-book asset ratio that is defined as total assets (at) plus market value of equity (csho × prcc_f) minus book value of equity (ceq) divided by total assets (at) as of the fiscal year end prior to a convertible announcement date.
VolatilityVolatility is defined as the daily stock return volatility calculated using stock returns over the window [–240, –40] relative to a convertible bond offering announcement date.
Amihud × 106An illiquidity measure based on Amihud (2002) times 1,000,000. It is calculated as the average absolute value of daily stock returns over trading volume in millions during the window [–120, –20] relative to a convertible bond offering announcement date.
Nasdaq listingA dummy variable to indicate issuers listed in the Nasdaq.
Analyst coverageNumber of financial analysts covering the offering firm, which is collected from the IBES database.
Post-issuance bond characteristics
DeltaConvertible delta numerically computed with a 5% change of stock price, as explained in Section 2.2, at the end of a month.
Absolute moneynessAbsolute value of moneyness measured by the natural logarithm of the ratio of the month-end share price of the underlying stock to the conversion price (as in Van Marle and Verwijmeren, 2017).
Log(TTC)Natural logarithm of the time to first call date (in years) from a given month.
Log(TTM)Natural logarithm of the time until maturity (in years) from a given month.
Stock volatility (monthly)Standard deviation of historical daily stock returns measured over a moving window of [–240; –40] prior to a month-end.
Amihud × 106 (monthly)Amihud (2002) illiquidity measure calculated using a moving window [–120, –20] prior to a month-end.
Bond trading volumeNatural logarithm of the total dollar trading volume of the convertible during a given month.
Fuzzy RDD-related variables
Price distanceDifference between the average stock price during 3 months from the beginning of the calendar year of an offering announcement and the minimum stock price of $3.0 ($7.5 until 2004) required by the SEC for option listing as specified in Equation (1).
EligibleA dummy variable to indicate that “Price distance” of the offering firm is positive and therefore, the offering firm is likely to be eligible for listing of options written on its stock.
VariablesDefinitions
Dependent variables
Offering discounts (in%)Offering discounts in percentage are measured as the difference between theoretical and offering prices over theoretical prices, and are winsorized at the 1st and 99th percentiles. Theoretical prices are calculated using the method of TF, a binomial approach. Inputs used in the model are described in detail in Section 3.2.
HF buyersNumber of hedge funds buyers who are identified as hedge funds from the full list of hedge fund managers in Bloomberg, Lipper TASS, and Hedge Fund Research (HFR) databases. Log(HF buyers) is the natural log of the number of hedge funds buyers.
Total buyersNumber of buyers identified from registration statements available at the SEC’s Edgar database as in Brown et al. (2012). Log(Total buyers) is the natural log of the number of all buyers.
Main explanatory variables
OptionA dummy variable to indicate that stock options are available for trading at the time of convertible issuance. It is set to be one if the option trading data are available for the issuer in OptionMetrics in the month of the convertible issue date.
Bond characteristics
DeltaA measure of the sensitivity of the convertible bond price to a stock price movement. The exact definition is described in Section 2.2.
Proceeds/MVAmount of capital raised at a convertible bond offering over the market capitalization (csho × prcc_f) at the end of fiscal year prior to the announcement of a convertible bond offering.
MaturityMaturity of a bond in number of years.
Combined offeringA dummy variable to indicate combined offerings with a concurrent buyback announcement (or an intention to use the proceeds to buy back shares) within the window of 11 days around the convertible bond announcement date
Rule 144AA dummy variable to indicate a Rule 144A private placement offering.
RatedA dummy variable to indicate offerings with an available S&P credit rating
Investment gradeA dummy variable to indicate offerings with an investment grade credit rating (an S&P credit rating of BBB or higher)
Firm characteristics
Log(Assets)Natural log of total assets of a firm (at) at the fiscal year end prior to the announcement of convertible bond issuance.
Market-to-bookMarket-to-book asset ratio that is defined as total assets (at) plus market value of equity (csho × prcc_f) minus book value of equity (ceq) divided by total assets (at) as of the fiscal year end prior to a convertible announcement date.
VolatilityVolatility is defined as the daily stock return volatility calculated using stock returns over the window [–240, –40] relative to a convertible bond offering announcement date.
Amihud × 106An illiquidity measure based on Amihud (2002) times 1,000,000. It is calculated as the average absolute value of daily stock returns over trading volume in millions during the window [–120, –20] relative to a convertible bond offering announcement date.
Nasdaq listingA dummy variable to indicate issuers listed in the Nasdaq.
Analyst coverageNumber of financial analysts covering the offering firm, which is collected from the IBES database.
Post-issuance bond characteristics
DeltaConvertible delta numerically computed with a 5% change of stock price, as explained in Section 2.2, at the end of a month.
Absolute moneynessAbsolute value of moneyness measured by the natural logarithm of the ratio of the month-end share price of the underlying stock to the conversion price (as in Van Marle and Verwijmeren, 2017).
Log(TTC)Natural logarithm of the time to first call date (in years) from a given month.
Log(TTM)Natural logarithm of the time until maturity (in years) from a given month.
Stock volatility (monthly)Standard deviation of historical daily stock returns measured over a moving window of [–240; –40] prior to a month-end.
Amihud × 106 (monthly)Amihud (2002) illiquidity measure calculated using a moving window [–120, –20] prior to a month-end.
Bond trading volumeNatural logarithm of the total dollar trading volume of the convertible during a given month.
Fuzzy RDD-related variables
Price distanceDifference between the average stock price during 3 months from the beginning of the calendar year of an offering announcement and the minimum stock price of $3.0 ($7.5 until 2004) required by the SEC for option listing as specified in Equation (1).
EligibleA dummy variable to indicate that “Price distance” of the offering firm is positive and therefore, the offering firm is likely to be eligible for listing of options written on its stock.
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