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| Author: | Buhler, W. Koziol, C. |
| Title: | Valuation of Convertible Bonds with Sequential Conversion |
| Journal: | Schmalenbach Business Review
2002 : OCT, VOL. 54:4, p. 302-334 |
| Index terms: | BONDS STOCKS EVALUATION |
| Language: | eng |
| Abstract: | In this paper, the authors characterize optimal conversion strategies and the related values of convertible bonds and stocks under a sequential conversion policy. Contrary to the existing literature, the authors consider firms that have both subordinated debt outstanding and convertible bonds. The additional debt results in wealth transfers among the holders of stock, convertible bonds, and additional debt, depending on the conversion strategy. These wealth transfers lead to remarkable differences in the optimal conversion policy and for the values of convertible bonds and stocks. It is possible that only a fraction of outstanding convertibles are converted at the last conversion date, that the stock value is partly strictl decreasing in the firm value, and partly decreasing in the dividend payment. |
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