Comment: Convertible Debt Financing

Miles Livingston

Journal of Financial and Quantitative Analysis, 1977, vol. 12, issue 3, 515-518

Abstract: A student of financial theory must always assume that managers will follow a course of action that will lead to a higher value of the firm rather than a lower value, given a choice between two courses of action. Yet, Lewellen and Racette (hereafter LR) in a recent paper [1] comparing the sale of convertible debentures with the sale of straight debt assumed that managers will behave in a way that will lead to submaximal firm value. The purpose of this paper is to correct the LR error.

Date: 1977
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