Firms' announcements to call in-the-money convertible securities for redemption essentially force their conversion into common stock, and such announcements are generally met with significant reductions in the calling firms' equity values. An explanation based on liquidity costs is advanced and...

A simple valuation model for callable warrants is derived and tested. The model is expressed in closed form except for one term which can be evaluated numerically. Predictions of 78 warrant prices are compared to market prices and the average error is -.224 percent. By contrast, the...

Direct costs of bankruptcy are measured for a sample of firms in the trucking industry that petitioned for bankruptcy protection from 1970 to 1985. Average direct bankruptcy costs represent 9.12 percent of the book value of total assets as of the year before filing. These costs are large...

Previous studies of bid-ask spread estimators based on serial covariance in returns document high proportions of positive serial covariances and therefore negative spread estimates. These findings may be due to the effects of time-variation in expected returns. Although purging the effects of...

Negative stock price reactions to conversion-forcing calls of convertible bonds and preferred stocks are reexamined and most of the sample firms are shown to exhibit full price recovery by the end of the conversion period. In addition, analysts' earnings forecasts, both short-term and long-term,...

We undertake a comprehensive test of several contingent claim valuation models adapted to callable, convertible preferred stocks employing a sample of twenty-four issues and over 27,000 daily price observations. To our knowledge, no large-scale tests of these models have been published. The most...