The long-run performance of firms that issue convertible debt: An empirical analysis of operating characteristics and analyst forecasts

Craig M. Lewis, Richard J. Rogalski, James K. Seward

Research output: Contribution to journalArticle

41 Scopus citations


Many firms issue hybrid securities, such as convertible debt, instead of standard securities like straight debt or common equity. Theoretical arguments suggest that convertible debt minimizes costs for firms facing high debt- and equity-related external financing costs. Theory also suggests that an appropriately designed convertible security provides efficient investment incentives. We show, however, that firms on average perform poorly following the issuance of convertible debt. The empirical evidence suggests that the efficient investment decisions predicted by theory are not in fact achieved by the actual design and issuance of convertible debt securities. An alternative interpretation of convertible debt offers is that investors ration the participation of some issuers in the seasoned equity market.

Original languageEnglish (US)
Pages (from-to)447-474
Number of pages28
JournalJournal of Corporate Finance
Issue number4
StatePublished - Dec 1 2001



  • Debt
  • Firm
  • Security

ASJC Scopus subject areas

  • Business and International Management
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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