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How do investors perceive convertible bond issuing decisions?

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  • Dutordoir, Marie
  • Merkoulova, Yulia
  • Veld, Chris

Abstract

We survey institutional investors on the convertible bond issuance decision. Investors believe that convertibles are preferred over equity in order to avoid equity dilution. We also find support for traditional convertible bond issuing theories, such as the backdoor equity, sequential financing, risk shifting, and risk disagreement models. Investors attribute little importance to factors that make convertible bonds more attractive for hedge funds such as volatility and dividend payments on the underlying stocks. This latter result is likely related to the smaller role that convertible arbitrage activity started to play in this market.

Suggested Citation

  • Dutordoir, Marie & Merkoulova, Yulia & Veld, Chris, 2022. "How do investors perceive convertible bond issuing decisions?," Finance Research Letters, Elsevier, vol. 44(C).
    • Handle: RePEc:eee:finlet:v:44:y:2022:i:c:s1544612321001161
    DOI: 10.1016/j.frl.2021.102035
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    Cited by:

    1. Burlacu, Radu & Jimenez-Garcès, Sonia, 2022. "Why do firms issue callable convertible bonds? A critique of the “backdoor equity financing” theory," Journal of Banking & Finance, Elsevier, vol. 144(C).

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    More about this item

    Keywords

    Convertible bonds; Institutional investors; Questionnaire; Agency problems;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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