Convertible Debt: Financing Decisions and Voluntary Conversion under Ambiguity

Elettra Agliardi, Rossella Agliardi and Willem Spanjers

International Review of Finance, 2015, vol. 15, issue 4, 599-611

Abstract: This paper integrates ambiguity into a contingent claim model for convertible debt. We study how convertible debt valuation is affected by the ambiguity biases of equity holders and debt holders and provide sensitivity analysis of the bond value to changes in attitude toward ambiguity, firm and bond parameters. Our results, which are summarized into five main predictions, are consistent with recent empirical evidence and offer a possible interpretation of some corporate finance puzzles.

Date: 2015
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