On the information content of calls of convertible securities

Negative stock price reactions to conversion-forcing calls of convertible bonds and preferred stocks are re-examined, and most of the sample firms are shown to exhibit full price recovery by the end of the conversion period. In addition, analysts' earnings forecasts, both short-term and long-term, are found to be revised upward following call announcements for convertible bonds and preferred stocks. The combined findings cast doubt on the established belief that such capital structure decisions signal negative information about firm value.