Benjamin Kleidt’s research while affiliated with European Business School and other places

We document a significant increase in systematic equity risk after a firm has issued convertible debt. In contrast, no such increase can be detected for equity issuers when infrequent trading and price adjustment delays are controlled for. The evidence is consistent with the notion that convertible debt issuers may be rationed out of the equity market due to uncertainty about their systematic risk.

In den letzten Jahren waren in Europa zahlreiche Emissionen von Umtauschanleihen zu beobachten, hinter denen die vornehmliche Bemühung von Unternehmen vermutet werden kann, Beteiligungen zu veräußern. Anhand eines Datensatzes, der 57 europäische Transaktionen der Jahre 1997 bis 2003 enthält, zeigen wir, dass auch geringere Transaktionsgebühren und Ankündigungseffekte (−1,52% im Durchschnitt) im Vergleich zu direkten Sekundärplatzierungen den Einsatz von Umtauschanleihen rechtfertigen können. Die beobachteten adversen Ankündigungseffekte lassen sich durch die mögliche Konzentrationsreduktion der Aktionärsstruktur des Umtauschunternehmens erklären, die durch die Verminderung des Kontrolleinflusses des Emittenten für die übrigen Aktionäre erhöhte Monitoringkosten nach sich zieht.

We study the valuation impact on 148 insurance stocks caused by 25 of the largest catastrophic events that occurred in recent history. Because of their exceptional severity and the consequent high attention they experience in the media we expect to find significant overreactions of insurance stocks relative to the market, which would be in-line with an availability bias known from the behavioral finance literature. However, we have to realize that insurance stock investors behave not less rational than the market does under these conditions. A clear exception to this are the 9/11 terror attacks. In general we find that insurance stocks adjust gradually to a new valuation level.

It is the objective of this dissertation to examine the use and performance impact of hybrid security issues conducted by US and Western European firms. In a paper-based format, the dissertation firstly addresses the question why firms issue convertible debt by analyzing and comparing changes in operating and stock price performance around convertible debt and seasoned equity offerings. Using a data set of 437 transactions, the analysis provides strong evidence in favour of a market timing-hypothesis, which argues that managers choose to issue convertible debt as a cheaper substitute for straight debt to benefit from temporary mispricings of their firm's common stock. In addition, an increase in systematic equity risk around convertible debt offerings suggests that some firms, even if they liked to obtain seasoned equity, would be foreclosed from participation in the seasoned equity market due to investor uncertainty about their risk characteristics. The second research question addressed by the dissertation concerns so-called concurrent offerings, where firms issue convertible securities alongside common stock. To explain the use and valuation impact of concurrent offerings, a signaling-hypothesis, which argues that issuing firms intend to trade off adverse selection against financial distress costs to reduce the mispricing of newly issued securities in the capital market, is tested using a sample of 47 US concurrent offerings accounting for a total issuance volume of 50 billion USD. While the signaling-hypothesis is supported for firms that issue mandatory convertibles alongside common stock, firms using ordinary convertible securities alongside common stock (OCF concurrent offerings) are evaluated by the capital market in a surprising fashion: the announcement return of OCF transactions amounts to-7%. After the offering, one third of OCF firms are delisted and the market value is nearly halved for the survivors. Neither the signaling-, nor a market timing-or a rationing-hypothesis can explain this pricing puzzle, which I lay in the hands of future research. The third research question is why Western European firms issue exchangeable debt and how capital markets respond to the issue announcement. An analysis of 57 transactions that occurred from 1997 through 2003 shows that exchangeable debt is a divestment strategy, which appears attractive due to lower transaction costs and higher announcement returns in comparison to other forms of secondary distributions that disperse concentrated share blocks. The negative valuation impact can be explained by the offer's potential to reduce the efficacy of the stockholders' ability to monitor the management of the exchange company. © Deutscher Universitats-Verlag/GWV Fachverlage GmbH, Wiesbaden 2006.

Studying a sample of 437 US transactions between 2000 and 2002, we find that convertible debt, as well as common stock, is issued after large share price increases by firms that have unusually high market-to-book ratios. After the issue, earnings and stock prices abnormally decline. The decline is more pronounced for firms that have had stronger appreciations in market value prior to the offering. These results support a timing-hypothesis, which suggests that managers choose to issue convertible debt to benefit from temporary mispricings of the underlying stock. If managers foresee their firms' poor post-issue stock price performance, they may intend to use convertible instead of straight debt: a pricing gap of the conversion option between themselves and outside investors allows managers to effectively reduce interest costs compared to straight debt issues. Consistent with this interpretation, convertible debt issuers have unused debt capacity.