dc.contributor.author | Barua, Samir K. | |
dc.contributor.author | Madhavan, T. | |
dc.contributor.author | Varma, Jayanth R. | |
dc.date.accessioned | 2010-03-31T04:31:08Z | |
dc.date.available | 2010-03-31T04:31:08Z | |
dc.date.copyright | 1991 | |
dc.date.issued | 2010-03-31T04:31:08Z | |
dc.identifier.uri | http://hdl.handle.net/11718/1838 | |
dc.description.abstract | Indian convertible bonds have two peculiar features that make them
possibly unique in the world: a) the bonds are compulsorily converted
into equity without any option, and b) the conversion terms are not
specified at the time of issue but are left to be determined
subsequently by the Controller of Capital Issues (CCI) who is the
government functionary regulating capital issues in India.
A naive model would say that the market simply forms an estimate of
the likely conversion terms and then values the bond as if these terms
were prespecified. This paper examines the market prices of one of
the largest issues of Indian convertible bonds with unspecified terms.
The empirical investigation convincingly rejects the naive model and
demonstrates that changes in the market's expectation of the
conversion terms are a significant factor affecting the pricing
relationship. These changes are significantly correlated with the
stock price itself. We do not, however, find any evidence that the
market expects the CCI to adjust the conversion terms on the basis of
the actual market price to protect the bondholder. But, there is
strong evidence that changes in expected conversion terms affect the
share price through the dilution effect. Since the unspecified terms
have only added to the uncertainty of the bondholders without giving
them any perceived benefits we recommend that this system should be
abolished.
In a companion paper, Barua and Varma (1991) present a theoretical
valuation model for the Indian convertible bonds with unspecified
terms. The empirical results in this paper confirm the predictions of
that model. | en |
dc.language.iso | en | en |
dc.relation.ispartofseries | WP;1991/990 | |
dc.subject | Convertible bonds - India | en |
dc.subject | Convertible preferred stocks - India | en |
dc.subject | Convertible bonds | |
dc.title | Indian convertible bonds with unspecified terms: an empirical study | en |
dc.type | Working Paper | en |