2004
DOI: 10.1111/j.1540-6261.2004.00636.x
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Convertible Bond Design and Capital Investment: The Role of Call Provisions

Abstract: If firms issue convertible securities to facilitate sequential investment, the securities should be engineered to give sufficient f lexibility to accommodate timing of follow-on investment. We examine call provisions in convertible bonds and argue that firms with investment options expected to expire sooner (later) will offer weaker (stronger) call protection. We find that issues with weak or no call protection are offered by firms that invest greater amounts soon after issuance than those issuing convertibles… Show more

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Cited by 74 publications
(56 citation statements)
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References 29 publications
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“…Nor are our results inconsistent with the recent findings of Korkeamaki and Moore (2004), which show that firms match the firmness of the call protection features on convertible bonds to accommodate the expected life of their investment options. Companies can be deliberate in creating the flexibility to call their convertibles, but whether forcing conversion of the bonds leads to greater investment than otherwise is a separate empirical issue.…”
Section: Resultscontrasting
confidence: 81%
See 1 more Smart Citation
“…Nor are our results inconsistent with the recent findings of Korkeamaki and Moore (2004), which show that firms match the firmness of the call protection features on convertible bonds to accommodate the expected life of their investment options. Companies can be deliberate in creating the flexibility to call their convertibles, but whether forcing conversion of the bonds leads to greater investment than otherwise is a separate empirical issue.…”
Section: Resultscontrasting
confidence: 81%
“…Korkeamaki and Moore (2004) find that firms planning capital expenditures soon after convertible issuance tend to include weaker call protection in their indentures.…”
mentioning
confidence: 96%
“…Firms with a short expected wait should therefore offer short call protection. Korkeamaki and Moore (2004) find evidence of a connection between issuers' investment patterns following the convertible issue and call protection terms on their issues.…”
Section: Call Provisions On Bondsmentioning
confidence: 89%
“…In Mayers' model, firms with sequential investment plans are able to minimize both overinvestment problems and refinancing costs by using convertibles. Korkeamaki and Moore (2004) extend Mayers' (1998) work by studying the implications of his model on call protection terms. If convertibles are used as vehicles to finance sequential investments, issuers want to be able to call their convertibles at the time of their next investment sequence.…”
Section: Call Provisions On Bondsmentioning
confidence: 96%
“…Po drugie, może pozwolić jej na złagodzenie sporów agencyjnych między akcjonariuszami a zarządem na tle zbyt ekspansywnej polityki inwestycyjnej realizowanej przez kadrę menedżerską [Isagawa, 2000[Isagawa, , 2002. Po trzecie, może ułatwić menedżerom realizację projektów inwestycyjnych o niepewnej rentowności lub nieznanej dacie realizacji [Mayers, 1998[Mayers, , 2000Korkeamaki, Moore, 2004;Jung, Sullivan, 2009].…”
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