Why Do Western European Firms Issue Convertibles Instead of Straight Debt or Equity?

43 Pages Posted: 23 Dec 2006

See all articles by Linda M. Van De Gucht

Linda M. Van De Gucht

KU Leuven - Department of Applied Economics

Marie Dutordoir

University of Manchester - Manchester Business School

Date Written: October 30, 2006

Abstract

Unlike their US counterparts, European convertible debt issuers tend to be large companies with small debt- and equity-related financing costs. Therefore, it is a puzzle why these firms issue convertibles instead of standard financing instruments. This paper examines European convertible debt issuer motivations by estimating a security choice model incorporating convertibles, straight debt, and equity. We find that European convertibles are used as sweetened debt, not as delayed equity. This motivation is also reflected in the highly debt-like design of most European convertible issues. In addition, we show that economy-wide and country-specific factors have a significant incremental impact on the convertible debt choice.

Keywords: Western Europe, Convertible Debt, Security Choice, Security Design

Suggested Citation

Van De Gucht, Linda M. and Dutordoir, Marie, Why Do Western European Firms Issue Convertibles Instead of Straight Debt or Equity? (October 30, 2006). ERIM Report Series Reference No. ERS-2006-056-F&A. Available at SSRN: https://ssrn.com/abstract=942151

Linda M. Van De Gucht

KU Leuven - Department of Applied Economics ( email )

Naamsestraat 69
B-3000 Leuven
BELGIUM

Marie Dutordoir (Contact Author)

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
278
Abstract Views
1,173
rank
111,343
PlumX Metrics