What we do and do not know about convertible bond financing

Marie Dutordoir, Craig Lewis, James Seward, Chris Veld

Research output: Contribution to journalArticle

17 Citations (Scopus)

Abstract

We review the literature on the issuance motives, shareholder wealth effects, and design of convertible bonds. Empirical studies on convertible debt issuance mainly focus on testing the predictions of four traditional theoretical models based on convertibles' potential to mitigate agency or adverse selection costs, and obtain mixed evidence. Recent studies on shareholder wealth effects of convertible bond issues highlight the need to control for arbitrage-related short selling and post-issuance risk changes. Studies on the determinants of convertible bond design uncover earnings management, as well as catering incentives to convertible arbitrage funds, as important determinants of innovations in convertible bond characteristics. Overall, our review indicates that recent empirical research on convertible debt provides valuable insights into issue motives and determinants of financial innovations, but also considers the broader question of how investor demand characteristics impact corporate finance decisions. We conclude with an overview of potential research questions to be addressed by future research on hybrid securities.

Original languageEnglish (US)
Pages (from-to)3-20
Number of pages18
JournalJournal of Corporate Finance
Volume24
DOIs
StatePublished - Feb 2014

Fingerprint

Bond financing
Convertible bonds
Arbitrage
Wealth effect
Shareholder wealth
Convertible debt
Empirical research
Short selling
Prediction
Corporate finance
Adverse selection costs
Earnings management
Testing
Incentives
Financial innovation
Innovation
Empirical study
Investors

Keywords

  • Agency costs
  • Asymmetric information
  • Convertible arbitrage
  • Convertible bond financing

ASJC Scopus subject areas

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

Cite this

What we do and do not know about convertible bond financing. / Dutordoir, Marie; Lewis, Craig; Seward, James; Veld, Chris.

In: Journal of Corporate Finance, Vol. 24, 02.2014, p. 3-20.

Research output: Contribution to journalArticle

Dutordoir, Marie ; Lewis, Craig ; Seward, James ; Veld, Chris. / What we do and do not know about convertible bond financing. In: Journal of Corporate Finance. 2014 ; Vol. 24. pp. 3-20.
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