THE PRICING OF CONVERTIBLE DEBT OFFERINGS

We present the first empirical evidence on the pricing of convertible debt offerings. Using a sample of 91 convertible debt offerings from t he period 1988-1992, we show a significant mean initial excess return of 1.11%. Our underpricing result is invariant to zero/nonzero coupons , maturity, issue size, or bond ratings. Further analysis reveals that various types of risk inherent in the new convertible issues are usef ul in explaining the cross-sectional variation in the initial excess r eturns. We offer an explanation for our results based on the arguments of the differential information model.