Are more analysts better? The case of convertible bond announcement effects

Abstract

We examine the stock market effects of the announcement and issuance of convertible bonds by European companies, conditional on the extent to which the issuers are covered by equity analysts. While there is no significant market reaction to the issue itself, its first announcement is associated with significant negative abnormal returns. However, we find that abnormal returns are less negative for firms with higher equity analyst following, which suggests that the analysts' monitoring activities improve the information environment surrounding the convertible bond issues. Moreover, this effect is significantly stronger after the implementation date of the European Markets in Financial Instruments Directive (MiFID) in the issuer's home country, indicating a further improvement in the information environment after the regulation came into effect.