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Security design of callable convertible bonds and issuers' external financing costs

Author

Listed:
  • Florence André Le Pogamp

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

  • Khalid Elbadraoui

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

Abstract

Existing research argues that convertible bonds mitigate issuers' external financing costs of financial distress, agency conflicts and informational asymmetry. The purpose of this paper is to test whether callable convertible bonds are designed in response to costly debt- and equity¬related financing problems. We identify the design (debt-, mixed- and equity-like) of callable convertible bonds using a measure of conversion probability which accounts for callability. Indeed, most of the existing empirical financial literature on convertible debt design does not pay much attention to the call feature in spite of its important repercussions on the security design. The empirical study provides evidence from 213 French callable convertible bonds over the period 1990-2010 that the issuer features, and hence the offering motives vary with the design of callable convertible debt.

Suggested Citation

  • Florence André Le Pogamp & Khalid Elbadraoui, 2013. "Security design of callable convertible bonds and issuers' external financing costs," Post-Print halshs-00940822, HAL.
    • Handle: RePEc:hal:journl:halshs-00940822
    as

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