Do Convertible Bond Issuers Cater to Investor Demand?

Abstract:     
Convertible debt represents an important source of financing for U.S. companies. We examine whether convertible bond issuance activity is influenced by changes in investor demand for convertible debt. We find that investor demand proxies are able to explain approximately one-third of the time-series variation in U.S. convertible debt issuance volumes over the period 1975 to 2007. We also document that convertible issuers act opportunistically by pricing their offerings more favorably following increases in investor preferences for convertibles, and by adjusting the design of their offerings towards changes in investor tastes. Our findings are robust to controlling for macroeconomic conditions and issuer characteristics.

Number of Pages in PDF File: 48

Keywords: Catering, Capital Supply, Convertible Debt, Underpricing

JEL Classification: G32, G39

working papers series