Dividend-Protected Convertible Bonds and the Disappearance
AbstractFirms have not historically called their convertible bonds as soon as they could force conversion. Various explanations for the delay rely on the size of the dividends that bondholders forgo so long as they do not convert. We investigate an important change in convertible security design, namely that more than 95 percent of recent convertible bond issues are dividend-protected. Dividend protection means that the conversion value of the shares into which a bond is convertible is unaffected by dividend payments and dividendrelated rationales for call delay become moot. We document that dividend-protectedconvertibles are called as soon as conversion can be forced.
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 12-060/2/DSF37.
Date of creation: 26 Jun 2012
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Call policy; Dividend protection; Convertible securities; Security design;
Find related papers by JEL classification:
- G2 - Financial Economics - - Financial Institutions and Services
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-08 (All new papers)
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