Convertible Bonds and Bonds With Warrants: A Review of Theory and Empirical Confirmations (L'émission de dettes assorties d'une option d'achat sur les capitaux propres de l'émetteur: théorie et confirmations empiriques)

Abstract:     
This paper addresses the question of the reason why firms issue debt accompanied with calls on their equity, like convertible bonds or bonds with warrants.

Theoretical work is based on financial markets imperfections, and often summarizes the problem as the question: "Is convertible debt issued as a debt sweetener, or as backdoor equity?". Section 1, below, details the rationale of this question, the main papers related to it and their implications on the issues. Section 2 shows that empirical work has long been devoted to this single question, but that recent studies propose new and promising ways of addressing this problem.

Keywords: convertible bonds, warrants, financing decision

JEL Classification: G32

Accepted Paper Series