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

Florence André Le Pogamp () and Khalid Elbadraoui ()
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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

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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.

Keywords: Callable convertible bonds; call feature; external financing costs; probability of conversion; security design (search for similar items in EconPapers)
Date: 2013
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Published in Brussels Economic Review , 2013, 56 (1), pp.57-77

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00940822

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