Abstract:
We investigate the value relevance of the financial statement information about
convertible financial instruments. Our findings indicate that the classification of
convertibles provides incremental information over and above the book value of equity
and net income. This finding is not as strong for convertibles that are classified as a form
of mezzanine financing between debt and equity as for those classified as debt or equity.
We also find that investors make use of information contained in the notes but only with
respect to mandatory convertibles and convertibles where the right to make the decision
about conversion or redemption rests with the issuer.