Why Do Western European Firms Issue Convertibles Instead of Straight Debt or Equity?
2006-10-30
Research Paper
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Published by
Rotterdam School of Management (RSM) Erasmus University, Erasmus Research Institute of Management (ERIM)
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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.
Keywords
Classifications using
Journal of Economic Literature (JEL) Classification System
- G3 : Corporate Finance and Governance
- G12 : Asset Pricing
- M : Business Administration and Business Economics; Marketing; Accounting
Automatically Extracted Terms
- equity
- european
- convertible
- security
- issue
- financing
- offering
- choice
- debt issuers
- issuer
- market
- debt-like
- company
- result
- debt-related financing costs
- sample
- table
- equity-related financing costs
- brennan
- equity-related
