Calling Nonconvertible Debt and the Problem of Related Wealth Transfer Effect
AbstractAn often-cited rule in corporate finance is that a firm should call a bond as soon as the bond's market price equals its call price. But, in fact, many callable bonds sell for more than their call prices. One explanation is that the implicit assumption that calls are executed so as to leave capital structure unchanged fails to hold in practice. This paper examines the impact of capital structure changes on optimal call policy and presents empirical evidence consistent with the results of that explanation.
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Bibliographic InfoArticle provided by Financial Management Association in its journal Financial Management.
Volume (Year): 23 (1994)
Issue (Month): 4 (Winter)
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- Marco Realdon, 2007.
"Valuation of the Firm's Liabilities When Equity Holders Are Also Creditors,"
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- Marco Realdon, 2006. "Valuation of the Firm's Liabilities when Equity Holders are also Creditors," Discussion Papers 06/16, Department of Economics, University of York.
- Y. D'Halluin & P. A. Forsyth & K. R. Vetzal & G. Labahn, 2001. "A numerical PDE approach for pricing callable bonds," Applied Mathematical Finance, Taylor & Francis Journals, vol. 8(1), pages 49-77.
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