For mimicking to be effective, the convertible bond contract terms set by mimickers should be similar to those of other issuers.
If firms that subsequently call or redeem their convertible bonds out-of-the-money are lower-quality issuers mimicking higher-quality firms, they should, on average, be riskier than convertible bond issuers that obtain back-door equity financing.
Also, since the three risk measures have been used previously as proxies for information asymmetry, our results suggest that mimicking firms face more information asymmetry prior to the offer announcement, than do non-mimicking firms.
97), indicating that mimicking firms usually announce an issue closer to information-release events than do firms that truthfully reveal firm quality.
These mimicking firms, prior to the offer announcement, are smaller, have lower market-to-book ratios, are less profitable, and have higher levels of risk.
In sharp contrast, [TABULAR DATA FOR TABLE 4 OMITTED] the two-day announcement wealth change for mimicking firms' convertible bond issues is an insignificant 0.
The insignificant wealth change for the subset of mimicking firms suggests that the market does not receive the convertible bond offer announcement negatively.
Moreover, we do not expect significant differences in wealth change on the offer date between the mimicking and non-mimicking groups of firms.
10% mean wealth change for issues by mimicking firms is insignificant, while the average abnormal return for non-mimicking firms, or firms whose convertible bonds infused equity into the capital structure, is a significant -0.
The ex post cost of mimicking is in issuing a convertible bond that does not infuse equity into the firm's capital structure.
For mimicking to be effective, low-quality firms should be riskier prior to offer announcement, and their security offerings should be similar to those offered by firms that truthfully reveal firm quality.
These mimicking firms are smaller, less profitable, and have lower market-to-book ratios and higher levels of unsystematic risk (information asymmetry) than does the group of non-mimicking firms.