Firms issuing convertible debt significantly underperform their matching firms of similar firm size and book-to-market ratio when we measure long-term performance uSing cumulative abnormal returns. Cross-sectional tests reveal that the stock underperformance is positively related with the subsequent operating performance whi le it is negatively related with pre-event stock performance. These empirical results support the notions that the market underreacts at the time of the debt offering announcement and that convertible debt is usually issued when the firm is overvalued. However, the long-term underperformance is not clear when we use the Fama-French intercept and the Calendar-Time Abnormal Returns to overcome