This paper examines the relationship between convertible debt issue announcements, announcement period share price reactions, and the profitability of the issuing firm's growth opportunities. We find that investor reactions are positively related to the profitability of the issuing firm's...

This paper proposes and implements a security design framework to assess why corporate managers issue convertible debt. We examine three theories that make predictions about the design of convertible debt. Our results suggest that some issuers design convertible debt to mitigate asset...

Firms have two motivations for issuing convertible debt. Some issue convertible debt instead of straight debt to mitigate the costs of bondholder/stockholder agency conflicts. Others issue convertible debt instead of common debt to reduce the costs of adverse selection.

There are now two dominant theories of convertible debt held by academic economists. One theory which has been called the "risk-shifting" hypothesis-effectively views convertibles as an alternative to straight debt. The second-known as the "sig-nalling" (or "backdoor-equity") theory-treats...