The Association between Issuance of Mezzanine and Firm Value

Some firms issue mezzanine for future growth, while some others abuse it. Using Korean firms during 2015-2018, we examine the association between convertible bonds (CB) bonds with warrants (BW) issuance and firm value. We find that issuing CB (BW) is positively associated with firm value, and for firms growing fast, the positive association is strengthened, consistent with investment expansion theory. For firms with greater ownership by the largest shareholder and affiliated parties, the positive association is attenuated, consistent with the wealth transfer hypothesis. Moreover, when outside directors attend a board meeting to issue CB, it has a positive association with firm value.