An Analysis of the Wealth Effects of Japanese Offshore Dollar-Denominated Convertible and Warrant Bond Issues

Offshore dollar-denominated equity-linked issues were amore 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 announcement of these issues is accompanied by a significant positive abnormal return. This contrasts with evidence that U.S. equity-linked issues have a significant negative stock-price reaction. We provide an explanation for the difference in stock-price reactions between U.S. and Japanese issues that is based on the greater influence on managers' security issue decisions of long-term investors and banks in Japan than in the U.S