Full-text resources of CEJSH and other databases are now available in the new Library of Science.
Visit https://bibliotekanauki.pl

PL EN


2015 | 11 | 2 | 64-75

Article title

Design of convertible debt financing - some observations from the American market

Content

Title variants

Languages of publication

EN

Abstracts

EN
A convertible bond may be an attractive financial instrument that helps to achieve the optimal capital structure of a company. In this paper, we analyze 562 issues of bonds from the American market between 2002-2013. Using regression trees analysis, we give some hints with respect to the design of convertible debt financing, which is the main goal of the paper, considering the most important characteristics of the issuers’ financial standing and the parameters of issued convertibles. Our research let us formulate a few conclusions. Firstly, we identified some relationships between a conversion premium, a conversion period and a conversion ratio applied by issuers. Secondly, it turned out that most of the issuer’s financial characteristics were not statistically significant for the issued convertibles. Finally, we found out that the share of fixed assets in the balance sheet amount seems to be one of the most important factors determining the internal structure of issued hybrid instruments, which supports the assets substitution theory.

Year

Volume

11

Issue

2

Pages

64-75

Physical description

Dates

published
2015-07-10

Contributors

References

  • Ammann, M., Fehr, M. Seiz, R., 2006. "New evidence on the announcement effect of convertible and exchangeable bonds", Journal of Multinational Financial Management, Vol.16, pp.43-63, http://dx.doi.org/10.1016/j.mulfin.2005.03.001
  • Belsley, D.A., Kuh, E., Welch, R.E., 1980. Regression diagnostics: Identifying influential data and sources of collinearity, Wiley, New York, http://dx.doi.org/10.1002/0471725153
  • Dann, L.Y., Mikkelson, W.H., 1984. "Convertible debt issuance, capital structure change and financing-related information", Journal of Financial Economics, Vol.13, pp.157-186, http://dx.doi.org/10.1016/0304-405X(84)90022-9
  • Elbadraoui, K., Lilti, J. M'Zali, B., 2010. "An analysis of risk changes surrounding French convertible bond offerings", Bankers Markets & Investors, Vol.107, pp.1-16
  • Essig, E., 1991. Convertible securities and capital structure determinants, PhD thesis, Graduate School of Business, University of Chicago
  • Galai, D., Masulis, R., 1976. "The option pricing model and the risk factor of stock", Journal of Financial Economics, Vol.3, pp.53-81, http://dx.doi.org/10.1016/0304-405X(76)90020-9
  • Goh, J., Xie W., 2009. "Is convertible bond offering a backdoor equity offering?", Electronic resource: http://citeseerx.ist.psu.edu/viewdoc/summary?doi=10.1.1.187.2343.
  • Green, R.C., 1984. "Investment incentives, debt, and warrants", Journal of Financial Economics, Vol.13, pp.115-136, http://dx.doi.org/10.1016/0304-405X(84)90034-5
  • Hu, X., Mao, H., 2009. "Empirical study on the financial characteristics of Chinese companies issuing convertible bonds", International Journal of Business and Management, Vol.4(6), pp.59-64, http://dx.doi.org/10.5539/ijbm.v4n6p59
  • Jensen, M.C., Meckling, W.H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure", Journal of Financial Economics, Vol.3, pp.305-360, http://dx.doi.org/10.1016/0304-405X(76)90026-X
  • Julio, B., Kim, W., Weisbach, M., 2007. "What determines the structure of corporate debt issues?", National Bureau of Economic Research, NBER Working Paper 13706
  • Lewis, C. M., Rogalski, R. J., Seward, J. K., 1998. "Understanding the design of convertible debt", Journal of Applied Corporate Finance, Vol.11, pp.45-53, http://dx.doi.org/10.1111/j.1745-6622.1998.tb00076.x
  • Lewis, C.M, Rogalski, R. J., Seward, J.K., 1999. "Is convertible debt a substitute for straight debt or for common equity?", Financial Management, Vol.28(3), pp.5-27, http://dx.doi.org/10.2307/3666180
  • Loncarski, I., ter Horst, J., Veld, C., 2006. "Why do companies issue convertible bonds: A review of theory and empirical evidence", In: Renneboog, L. (Ed.), Advances in Corporate Finance and Asset Pricing, Amsterdam Elsevier, http://dx.doi.org/10.1016/b978-044452723-3/50014-0
  • Miller, M.H., Rock, K., 1985. "Dividend policy under asymmetric information", Journal of Finance, Vol.40, pp.1031-1051, http://dx.doi.org/10.1111/j.1540-6261.1985.tb02362.x
  • Myers, S., 1977. "Determinants of corporate borrowing", Journal of Financial Economics, Vol.5, pp.147-175, http://dx.doi.org/10.1016/0304-405X(77)90015-0
  • Stein, J., 1992. "Convertible bonds as backdoor equity financing", Journal of Financial Economics, Vol.32, pp.3-21, http://dx.doi.org/10.1016/0304-405X(92)90022-P
  • Titman, S., Wessels, R., 1988. "The determinants of capital structure", Journal of Finance, Vol.43, pp.1-19, http://dx.doi.org/10.1111/j.1540-6261.1988.tb02585.x
  • Yaman, D., 2010. "Convertible bond design and long-run operating performance", The International Journal of Business and Finance Research, Vol.4(3), pp.17-30
  • Zeidlera, F., Mietznerb, M. Schiereck, D., 2012. "Risk dynamics surrounding the issuance of convertible bonds", Journal of Corporate Finance, Vol.18(2), pp.273-29, http://dx.doi.org/10.1016/j.jcorpfin.2011.12.001

Document Type

Publication order reference

YADDA identifier

bwmeta1.element.desklight-7c32a1ed-f387-4035-9dfe-be68f00e8a78
JavaScript is turned off in your web browser. Turn it on to take full advantage of this site, then refresh the page.