Abstract
This paper examines the association between the cost of convertible debt and earnings quality based on well-known attributes. Using a large sample of U.S. convertible debt issued during 1983 to 2010, we find consistent evidence that better earnings quality is related to lower cost of convertible debt. Generally, accounting-based earnings quality is more important than market-based earnings quality in determining the cost of convertible debt. Moreover, accrual quality is found to have the highest effects among the seven earnings attributes examined. Further analysis suggests that the association between costs of convertible debt and earnings quality is more pronounced for publicly offering convertible debts, indicating public investors’ inflexibility and reliance on price terms to adjust their risks. Our results are robust to distinguishing debt-like and equity-like convertible debts and alternative measurement of earnings quality and costs of convertible debt. Our findings should be of interest to the academy, practitioners, and policy makers.
Original language | American English |
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State | Published - Aug 5 2013 |
Event | American Accounting Association Annual Meeting (AAA) - Chicago, IL Duration: Aug 10 2015 → … |
Conference
Conference | American Accounting Association Annual Meeting (AAA) |
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Period | 08/10/15 → … |
Keywords
- Convertible debt
- Cost of convertible debt
- Earnings attributes
- Earnings quality
DC Disciplines
- Accounting