Are They Still Called Late? The Effect of Notice Period on Calls of Convertible Bonds

Posted: 19 Jan 2004

See all articles by Alexander W. Butler

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business

Ayca Altintig

Claremont Colleges - Peter F. Drucker Graduate School of Management

Multiple version iconThere are 2 versions of this paper

Abstract

When calling its convertible bonds, a company must typically give bondholders a notice period of about 30 days to decide whether to convert the bonds. This notice period affects the optimal call policy for convertible bonds. After accounting for the notice period, convertible bonds in our sample would have been optimally called when the stock was at about an 11% premium (median) relative to the conversion price. We show that after properly accounting for the call notice period and other factors, the median excess call premium is less than 4% - substantially less than the 26%-44% call premium previous researchers have documented.

Keywords: Call policy, convertible bonds

JEL Classification: G30, G32

Suggested Citation

Butler, Alexander W. and Altintig, Z. Ayca, Are They Still Called Late? The Effect of Notice Period on Calls of Convertible Bonds. Journal of Corporate Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=487405

Alexander W. Butler (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

MS 531
Houston, TX 77005
United States
713-348-6341 (Phone)

HOME PAGE: http://www.owlnet.rice.edu/~awbutler/

Z. Ayca Altintig

Claremont Colleges - Peter F. Drucker Graduate School of Management ( email )

The Drucker School of Management
1021 North Dartmouth Avenue
Claremont, CA 91711
United States

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