AFFI International Conference 2017

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Convertible Bonds Call Policy of Western European Companies

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This paper analyzes the determinant of the CB call policy on the Western European market. As previous studies, we find that the companies do not call their bonds at the optimum point identified by Ingersoll (1977). The firms in our sample delay the CB call for 76 days and the call occurs when the conversion value exceeds the redemption price by around 46%. Unlike previous researches in the same area, our study considers the main theoretical rationales for CB call delay (notice period justification, cash flow advantage hypothesis, financial distress rationale and the signaling theory). We find little evidence for cash flow advantage and signaling theories but no evidence for the notice period justification. However, our study highlights strong evidence for the financial distress hypothesis. We find for example a null probability of failed conversion at the call date. The regression models confirm this result since we show that the safety premium increases with the failed conversion probability at the Ingersoll (1977a) optimum point. Overall in our models, the financial distress proxies present significant coefficients in line with the financial distress hypothesis.


Olivier Yvon Adoukonou    
Université de Rennes 1

Florence André-Le Pogamp    
Université de Rennes 1

Jean-Laurent Viviani    
Université de Rennes 1


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