The impact of convertible bonds on firm value: A study of a sample of companies listed in selected financial markets

Abstract

This research aims to shed light on a non-traditional financing instrument and its impact on ‎firm value, as these financial instruments combine characteristics of both debt and equity, ‎making the assessment of their effect on firm value a complex task. The study addresses the ‎main research question: Do convertible bonds have a positive impact on the value of companies ‎listed on the NASDAQ index?. This question is based on the hypothesis that convertible bonds ‎have a significant positive effect on firm value. The sample consisted of ten (10) companies ‎listed on the NASDAQ Stock Market and other financial markets during the period (2014–‎‎2023), which issued these bonds continuously throughout the period, considering the ‎availability of data. The study adopted a quantitative analytical methodology, using a dynamic ‎panel data model to estimate the impact of these bonds on the market value index of the sample ‎companies, while controlling for a number of moderating variables to reinforce the strength of ‎the relationship. The findings contradicted the expected advantages of such instruments such as ‎lower cost and the ability to absorb losses‏ ‏as the results indicated a negative effect on the ‎market value of the companies. This suggests that these bonds sent negative signals to the ‎market and investors regarding the future and profitability of the sample companies and ‎possibly reflected the companies' reliance on this type of financing to meet funding needs, ‎potentially leading to a decline in shareholders’ equity.