AN ANALYSIS OF THE WEALTH EFFECTS OF JAPANESE OFFSHORE DOLLAR-DENOMINATED CONVERTIBLE AND WARRANT BOND ISSUES

Offshore dollar-denominated equity-linked issues were a more important source of funds for Japanese companies during the 1980s than domestic equity and straight debt issues combined. Using a sample of Japanese equity-linked offshore issues from 1977 to 1989, we find that the anno uncement of these issues is accompanied by a significant positive abno rmal return. This contrasts with evidence that U.S. equity-linked issu es have a significant negative stock price reaction. We provide an exp lanation for the difference in stock price reactions between U.S. and Japanese issues that is based on the greater influence on managers' se curity issue decisions of long-term investors and banks in Japan than in the U.S.