http://repub.eur.nl/res/aut/7938/ List of Publications en http://repub.eur.nl/static-eur/img/logo.png http://repub.eur.nl http://repub.eur.nl/res/pub/8043/ 2006-10-30T00:00:00Z Unlike their US counterparts, European convertible debt issuers tend to be large companies with small debt- and equity-related financing costs. Therefore, it is a puzzle why these firms issue convertibles instead of standard financing instruments. This paper examines European convertible debt issuer motivations by estimating a security choice model incorporating convertibles, straight debt, and equity. We find that European convertibles are used as sweetened debt, not as delayed equity. This motivation is also reflected in the highly debt-like design of most European convertible issues. In addition, we show that economy-wide and country-specific factors have a significant incremental impact on the convertible debt choice. http://repub.eur.nl/res/pub/8044/ 2006-10-30T00:00:00Z This paper hypothesizes that hot convertible debt windows represent periods with lower convertible debt-related financing costs. Supporting this premise, we find that the stock price impact of Western European convertible debt announcements is significantly less negative during hot convertible windows. Importantly, this result holds while controlling for equity market, straight debt market and macroeconomic conditions. In addition, stockholders are less sensitive to issuer- and issue-specific financing costs during hot convertible markets. Overall, these findings indicate that hot convertible markets represent windows of opportunity for convertible debt issuance. Firms with high idiosyncratic financing costs act accordingly by timing their convertible offering during a hot market.