Convertible Bond Underpricing: Renegotiable Covenants, Seasoning, and Convergence
研究可转换债券发行折价的长期谜题，发现折价源于契约可能重新协商（如财务困境时嵌入的看跌期权），低评级债券初始折价更大，且若发行人后续陷入财务困境则折价加剧；但若评级未下调，债券价格会在两年内收敛至理论价格，高评级债券收敛更快。
We investigate the long-standing puzzle on the underpricings of convertible bonds. We hypothesize that the observed underpricing is induced by the possibility that a convertible bond might renegotiate on some of its covenants, e.g., an imbedded put option in financial difficulties. Consistent with our hypothesis, we find that the initial underpricing is larger for lower rated bonds. The underpricing worsens if the issuer experiences subsequent financial difficulties. However, conditional on no rating downgrades, our main empirical result shows that convertible bond prices do converge to their theoretical prices within two years. This seasoning period is shorter for higher rated convertible bonds.