What we do and do not know about convertible bond financing

Dutordoir, M., Lewis, C., Seward, J. and Veld, C. (2014) What we do and do not know about convertible bond financing. Journal of Corporate Finance, 24, pp. 3-20. (doi: 10.1016/j.jcorpfin.2013.10.009)

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Publisher's URL: http://dx.doi.org/10.1016/j.jcorpfin.2013.10.009

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.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Veld, Professor Chris
Authors: Dutordoir, M., Lewis, C., Seward, J., and Veld, C.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Journal of Corporate Finance
Publisher:Elsevier
ISSN:0929-1199
ISSN (Online):1872-6313

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