IS THERE A GLOBAL MARKET FOR CONVERTIBLE BONDS

Prior to 1984, the stock price reaction to announcements of a convertible issue in the domestic market was significantly negative, while the reaction to issues on the Eurobond market was smaller in absolute value and not consistently negative. After 1984, this difference in stock price reactions seems to have disappeared. The difference in abnormal returns before 1984 cannot be explained by existing signaling models of convertible bond issues. It is consistent, however, with the hypothesis that American firms captured some of the tax advantage of Eurobonds relative to domestic bonds before the change in U.S. withholding taxes in July 1984.