An Empirical Analysis of the Financing Strategy of Callable Bonds,

This paper empirically analyzes the call timing of callable bonds to see how refunding opportunity, cost of financial distress, agency cost of debt, and private information affect the call decision. The empirical results show that firms issue callable bonds, convertible or not, to enjoy future refunding options; that the cost of financial distress weakly expedites calling convertible bonds but not non-convertibles; that firms which are in debt delay calling non-convertibles but not convertibles; that callable bonds, convertible or not, are issued to mitigate adverse selection under information asymmetry; and that after the end of call protection periods the call intensity monotonically decreases for the non-convertible bonds but not for the convertible bonds.