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A theory of mandatory convertibles: distinct features for large repeated financing

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  • Susheng Wang

Abstract

In recent years, mandatory convertibles (MCs) have become a popular means of raising capital, especially for large projects. This paper is the first theoretical paper to investigate MCs using the incomplete-contract approach. We show that MCs can be an efficient instrument in sequential financing. MCs have some distinct features compared to other convertibles, such as mandatory conversion, a high dividend rate, and capped capital appreciation. We show in theory that these features are designed to achieve efficiency.

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  • Susheng Wang, 2018. "A theory of mandatory convertibles: distinct features for large repeated financing," The European Journal of Finance, Taylor & Francis Journals, vol. 24(4), pages 347-362, March.
    • Handle: RePEc:taf:eurjfi:v:24:y:2018:i:4:p:347-362
    DOI: 10.1080/1351847X.2017.1285337
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    Cited by:

    1. Angel Huerga & Carlos Rodríguez-Monroy, 2019. "Mandatory Convertible Notes as a Sustainable Corporate Finance Instrument," Sustainability, MDPI, vol. 11(3), pages 1-26, February.

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