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| Author: | Asquith, P. Mullins, D.W. Jr |
| Title: | Convertible debt : corporate call policy and voluntary conversion |
| Journal: | Journal of Finance
1991 : SEP, VOL. 46:4, p. 1273-1289 |
| Index terms: | DEBT MANAGEMENT BONDS |
| Language: | eng |
| Abstract: | It is examined why firms do not call convertible debt when the conversion price exceeds the call price. The principal reason is because some firms enjoy an advantage of paying less in after-tax interest than they would pay in dividends, were the bond converted. This cash flow incentive is the inverse of an investor's incentive to convert voluntarily if the converted dividends are greater than the bond's coupon. It is also found that voluntary conversion is significantly related to both the conversion price and the differential between the coupon and the dividends on the converted stock. |
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