Business, Management and Accounting
4 years ago

Convertible debt financing leads to earlier defaults and deferred investments.

1 view
SSRN Electronic Journal
The Impact of Convertible Debt Financing on Investment Timing
Kyoko Yagi, Ryuta Takashima

Paper Summary

The article explores how firms decide when to invest based on issuing convertible debt. Firms with high demand volatility use high-coupon convertible debt for investments. Default happens sooner with convertible debt than with straight debt. Firms with high growth, volatility, and low costs delay investments with convertible debt. Firms with callable convertible debt invest earlier than those with non-callable debt, using suboptimal payments. Forced conversion benefits increase with higher volatility.

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