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Understanding The Design Of Convertible Debt


  • Craig M. Lewis
  • Richard J. Rogalski
  • James K. Seward


There are now two dominant theories of convertible debt held by academic economists. One theory which has been called the "risk-shifting" hypothesis-effectively views convertibles as an alternative to straight debt. The second-known as the "sig-nalling" (or "backdoor-equity") theory-treats convertibles as an alternative to ordinary equity. This article attempts to unify (or at least to illustrate the relationship between) these two theories by focusing on the design of the securities. 1998 Morgan Stanley.

Suggested Citation

  • Craig M. Lewis & Richard J. Rogalski & James K. Seward, 1998. "Understanding The Design Of Convertible Debt," Journal of Applied Corporate Finance, Morgan Stanley, vol. 11(1), pages 45-53.
  • Handle: RePEc:bla:jacrfn:v:11:y:1998:i:1:p:45-53

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    Cited by:

    1. Schmitt, Andre & Spaeter, Sandrine, 2005. "Improving the prevention of environmental risks with convertible bonds," Journal of Environmental Economics and Management, Elsevier, vol. 50(3), pages 637-657, November.
    2. repec:dgr:rugsom:02e74 is not listed on IDEAS
    3. Marco Realdon, "undated". "Convertible Subordinated Debt Valuation and "Conversion in Distress"," Discussion Papers 03/18, Department of Economics, University of York.
    4. Korkeamaki, Timo P., 2005. "Effects of law on corporate financing practices--international evidence from convertible bond issues," Journal of Corporate Finance, Elsevier, vol. 11(5), pages 809-831, October.
    5. Wever, Jolle O. & Smid, Peter P.M. & Koning, Ruud H., 2002. "Pricing of convertible bonds with hard call features," Research Report 02E74, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    6. Florence Andre-Le Pogamp & Khalid El Badraoui, 2013. "Security Design of Callable Convertible Bonds and Issuers' External Financing Costs," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 56(1), pages 61-81.
    7. Alberto Fuertes & José María Serena, 2016. "How firms borrow in international bond markets: securities regulation and market segmentation," Working Papers 1603, Banco de España;Working Papers Homepage.
    8. repec:bbz:fcpbbr:v:7:y:2010:i:3:p:1-22 is not listed on IDEAS

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