Convertible Debt Issuance & Target Leverage Adjustments

40 Pages Posted: 17 Sep 2016 Last revised: 22 Sep 2016

See all articles by Ashleigh Eldemire-Poindexter

Ashleigh Eldemire-Poindexter

Haslam College of Business, University of Tennessee

Date Written: September 1, 2016

Abstract

I study the target leverage and partial adjustment activity of firms that issue convertible bonds. Convertibles may help target adjustment efforts by lowering issuance transaction costs and reducing interest expenses. Nevertheless, convertible debt can increase liabilities for an unknown amount of time until the bond matures or converts. Although the average issue greatly increases debt levels, I find that issuers - both above and below their target leverage - experience faster adjustments when convertible debt is offered. Firms continue to experience faster adjustments throughout the life of the convertible bond. The speed of adjustment results are robust to concurrent capital structure changes.

Keywords: Convertible Bonds, Target Leverage, Leverage Adjustments

JEL Classification: G31, G32

Suggested Citation

Eldemire-Poindexter, Ashleigh, Convertible Debt Issuance & Target Leverage Adjustments (September 1, 2016). Available at SSRN: https://ssrn.com/abstract=2837760 or http://dx.doi.org/10.2139/ssrn.2837760

Ashleigh Eldemire-Poindexter (Contact Author)

Haslam College of Business, University of Tennessee ( email )

Knoxville, TN 37996
United States

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