of 682 CB offerings. From this sample only 56 issues were eliminated because the offering was
announced in conjunction with other company news (or because the offering was not announced in
the Wall Street Journal). A reason for this may be that an issue of CBs or WBs is a real "event" in
a small capital market such as the one in the Netherlands. When a company announces an issue of
CBs or WBs it can be sure to attract enough attention by the financial press. Therefore it may be
more worthwhile to surround the announcement by good news.
From table 2 it can also be concluded that the announcements of WBs are followed by
significant positive returns, while this is not the case for CBs. This is in line with Billingsley et. al.
(1990) who also find that WBs are more favorably received than CBs. Table 2 also reports a test
for the significance of the difference between the cumulative average abnormal returns of CBs and
WBs. The test is a t-test for a zero difference between the cumulative average abnormal returns,
using non-pooled standard deviations. This test does not indicate any significant difference between
the two announcements. However, in order to investigate the difference in effects between
issuances of CBs and WBs, also possible differences between CBs and WBs should be taken into
account. The next section further investigates this topic.
3. A comparison of CBs and WBs
The equivalences and differences between CBs and WBs
Jones and Mason (1986) and Finnerty (1986) demonstrate that WBs can be constructed in such a
way that they are identical to CBs. According to these authors the only thing that remains is that in
such a case WBs are more favorable for companies in the United States, because of tax consider-
ations. In the Netherlands there are no tax differences between CBs and WBs (Veld, 1994).
Although these two forms of securities can be structured in such a way that they are in fact
identical, in practice some differences can be observed. The main difference is that WBs are
separately traded securities, while in case of CBs, the bonds and the conversion right are always
traded together. Therefore, the warrants and the bonds are also separately redeemable, while this is
not the case for the bonds and the conversion rights. Another main difference is that conversion
rights are exercised by redeeming the accompanying bond, while warrants are exercised for cash4.
For the remainder the extent to which CBs and WBs differ is mostly an empirical matter. Two
important differences will be considered for our sample of 47 CBs and 19 WBs.
4 In the United States also warrants exist, which may be exercised using the accompanying
bonds (see Jones and Mason, 1986). In the Netherlands such warrants have not yet occurred (see
Veld, 1992, page 31).