Why Do European Firms Issue Convertible Debt?

Franck Bancel and Usha R. Mittoo

European Financial Management, 2004, vol. 10, issue 2, 339-373

Abstract: We survey European managers to gain some insights into motivations of convertible issuance. Our analysis shows that a majority of firms issue convertibles as ‘delayed equity’ and as ‘debt sweetener’. Managers also use convertibles to avoid short‐term equity dilution and to signal firm's future growth opportunities. We document a large cross‐sectional variation across firms in rationales for issuing convertibles and find mixed support for most theoretical models. Our evidence suggests that the popularity of convertibles is driven primarily by their versatility in adjusting their design to fit the financing needs of individual firms, and by their increased demand among institutional investors.

Date: 2004
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