Shareholder wealth effects of convertible bond announcements in South Africa

This study examines shareholder wealth effects of convertible bond announcements in South Africa for the period 2004 to 2017. The data shows that South African companies issue convertible bonds for several reasons and that issues are not only South African rand denominated, but are in other currencies as well. However, a review of the convertible bond announcements show that the majority of convertible bonds were issued in local currencies. In addition to the currency of issue, the study also shows that the majority of the stated practical uses of the proceeds was to finance corporate general purposes (47%, i.e. 7 of the 15 in the final sample) and the repayment of debt (, i.e. 47% that is, 7 out of 15). Contrary to prior studies in Korea and Japan, the results of this current study show that the use of proceeds towards project financing and capital expenditure ranked the least. Empirically, various t- tests were conducted to examine statistical significance of the wealth effects of convertible bond announcements. The findings from the various tests performed consistently showed that the announcements had significant negative price reactions. First, the findings shows that the announcements of convertible bonds in general (that is without distinction) had significant negative price reactions. The announcements in general, had significant negative wealth effects irrespective of whether the announcements were based on local or foreign currency. The results also show that the mean cumulative abnormal returns (CARs) of the issues denominated in rand value were more negative than those made in other currencies. In addition, further tests also show that the mean CARs based on the stated use of proceeds were significantly negative irrespective of whether the issues were for corporate general purpose or for the repayment of debt. Overall, the study shows that convertible bond issues in South Africa have a significant negative CARs around the announcement date.

Grantor

Department of Finance and Tax

Year dc:date.issued

2019

Author dc:creator

• Albanie, Sylvester

Advisor dc:contributor.advisor

• Pamburai, Harvey

• finance
• tax

Handle dc:identifier.uri

http://hdl.handle.net/11427/31239

OAI identifier oai:identifier

oai:open.uct.ac.za:11427/31239