Bancel & Mittoo (2004a)

European Financial Management, Vol. 10, No.
2, 2004, 339–374
Why Do European Firms Issue

Convertible Debt?
Franck Bancel
ESCP-EAP, European School of Management, 79 av. de la république, 75543 Paris, France
e-mail: bancel@escp-eap.net
Usha R. Mittoo
I.H. Asper School of Business, 181 Freedman Crescent, Winnipeg, R3T 5V4 Manitoba, Canada
e-mail: umittoo@ms.umanitoba.ca.
Abstract
We survey European managers to gain some insights into motivations of convertible
issuance. Our analysis shows that a majority of firms issue convertibles as ‘delayed
equity’ and as ‘debt sweetener’. Managers also use convertibles to avoid short-term
equity dilution and to signal firm’s future growth opportunities. We document a large
cross-sectional variation across firms in rationales for issuing convertibles and find mixed
support for most theoretical models. Our evidence suggests that the popularity of con-
vertibles is driven primarily by their versatility in adjusting their design to fit the financing
needs of individual firms, and by their increased demand among institutional investors.
Keywords: Convertible debt; European managers; survey; delayed equity; debt sweetener
JEL classification: G32, G15, F23
1. Introduction
Why firms issue convertible debt has both intrigued and puzzled financial researchers.
The convertible bonds are after all only a bundle of straight debt and call options on
the issuer company’s stock. What special advantages do they provide that cannot be
mimicked by a unit offering of straight bond debt and warrants? Yet the popularity of
convertibles remains unabated and continues to challenge researchers to come up with
reasonable explanations. A rich theoretical literature has also developed to explain
We are grateful to all Chief Financial Officers who have participated in this study and to Exane,
BNP Paribas and Merrill Lynch corporate finance teams for their valuable comments and
suggestions on our survey project. We also thank Lemma Senbet, Ales Berk, Steven Wang, and
participants at the 2003 European Financial Management Association (EFMA) meetings and
the 2003 Multinational Financial Society meetings for their helpful comments, and Phalguni
Dave for research assistance. Mittoo acknowledges financial support from the Bank of
Montreal Professorship. Corresponding author: Usha R. Mittoo
# Blackwell Publishing Ltd. 2004, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.
340 Franck Bancel and Usha R. Mittoo
rationales for convertible issuance but empirical evidence is mixed. The goal of this
paper is to provide some insights into the link between theory and practice of
convertible issuance through a survey of European managers.
Our survey complements and extends the literature in several aspects. First, most of
the previous managerial surveys on convertible debt issuance have been undertaken in
the USA which has a well-developed and mature convertible market. In contrast, the
European convertible market gained momentum only in the mid-1990s but has grown
rapidly since then. Further, European convertible bonds have several distinctive features
not observed in the US case.1 For example, in addition to issuing the standard con-
vertible debt security, many European firms also issue exchangeable bonds where the
options are written on securities of other firms. Also, many European convertibles are
denominated in a currency other than that of the underlying equity. Further, convertible
features, markets, and regulatory environments vary widely even across European
countries providing us a rich data set to explore cross-country differences.2 The French
market comprises about one third of the European market and is the fastest growing
with a large base of private and institutional investors. In this study, we compare
managerial perspectives of French versus other European firms to gain some insights
into factors that may have spurred growth of the French convertible market.
Second, the direct empirical evidence on motivations for issuing convertibles consists
largely of managerial surveys, beginning with the first such survey by Pilcher in 19553.
In addition, several studies provide indirect evidence by studying characteristics of the
issuers, offerings, and call features. Despite a preponderance of these studies, the
empirical evidence is mixed. As Mayers (1998) observes that a problem with existing
evidence on convertible bonds is that it is consistent with sequential-financing hypo-
thesis as well as with after-issue risk shifting, risk estimation and asymmetric information
theories. Another major problem is that managerial motivations are likely to change
over time, making it difficult to interpret evidence from studies conducted over different
time periods, each covering different aspects of convertible issuance.4 The main con-
tribution of our study is to examine several aspects of convertible bond issuance in the
same sample. We ask managers questions not only on the rationale for issuing con-
vertibles but also on other aspects of convertible bonds such as the use of funds,
influence of market conditions, and on the firm’s callable policy. This allows us to
examine both direct and indirect implications of different theories in the same sample.
Finally, the interplay between theoretical development and survey evidence on
rationales for issuing convertibles has been a continuous process. While evidence
produced by earlier surveys appears to have motivated theoretical development in
the 1980s and 1990s, theoretical developments in turn have led to more comprehensive
surveys over time. Our survey continues this ongoing interaction by analysing several
new theories not examined in the previous surveys. Our approach is closer to that of
1
See Noddings et al. (2001) and Hope (2000) for description and special features of the
European convertible market.
2
See for example, Amman et al. (2003), Fernandez (1993), De Roon and Veld (1998), and Veld
(1994) for distinctive features of the French, Spanish and Dutch convertible bonds respectively.
3
Other surveys include Brigham, 1966; Hoffmeister, 1977; Billingsley and Smith, 1996; Graham
and Harvey, 2001; and Bancel and Mittoo, 2002.
4
See for example, Billingsley and Smith (1996) who document a change in managerial
motivations over time.
# Blackwell Publishing Ltd, 2004

Convertible Debt Issuance 341
Billingsley and Smith (BS, 1996) who combine analysis of market reaction to the
announcements of convertibles issues with that of managerial survey data but differs
from theirs in several dimensions. Our survey spans 16 European countries and relates
our findings relative to recent surveys on capital structure by Graham and Harvey
(GH, 2001) and Bancel and Mittoo (BM, 2002).
We received responses from eight European countries and our analysis shows some
interesting findings. A majority of firms issue convertibles as ‘delayed equity’ and as
‘debt sweetener’. Managers are also concerned about equity dilution and use ‘windows
of opportunity’ when issuing convertibles. However, there are substantial cross-
sectional variations in reasons for issuing convertibles as well as in features of con-
vertible bonds issued. Overall, we find mixed support for most theories on convertible
issuance. The evidence suggests that convertibles appeal to different clienteles because
of their versatility of design in matching the financing needs of individual firms, and the
investment needs of different institutional investors.
The rest of the paper is organised as follows. The next section reviews the literature
on rationale for convertibles and discusses the survey design. Section 3 discusses the
survey methodology and sample characteristics. Empirical analysis is presented in
section 4 and summary and conclusions in the last section.
2. Literature review
While a rich theoretical and empirical literature on pricing and call policies of con-
vertible bonds has emerged in the last three decades, relatively few studies have
focused on the rationale for using convertibles. Brennan and Schwartz (BS, 1988)
observe, ‘To the perplexity of academics, however, the popularity of convertibles has
shown little sign of abating. Consequently, as ‘positive financial economists, we have
been faced with the task of finding a convincing explanation for the corporate use of
convertibles – one that is consistent with rational investors and sophisticated financial
markets.’ In this section, we review the theoretical and empirical literature pertaining
to the rationale for convertible issuance.
2.1. Theoretical models

In most theoretical models, convertibles generally resolve either a financing or an
investment problem. Earlier models emphasised the role of convertibles in resolving
risk-shifting or risk-assessment problems associated with a firm’s assets in place.
Green (1984) develops a model in an agency framework in which interests of share-
holders are in conflict with that of bondholders. Shareholders prefer high risk projects
since they gain when investment returns are above those required to service debt
payments but have limited liability when returns are low. Managers working as agents
of the shareholders have an incentive to engage in riskier projects in conflict with
bondholders’ preference for low risk projects. Convertible bonds provide the bond-
holders an option on converting their bonds to the underlying stock and, conse-
quently, reduce their concern about ex post risk-shifting. Brennan and Schwartz (BS,
1988) and Brennan and Kraus (BK, 1987) develop models in a setting in which investors
have difficulty in assessing the risk of firm’s assets in place. Issuing convertible debt,
instead of straight debt, in such a setting helps in resolving uncertainty about this risk.
In the BK (1987) model, managers can also signal the riskiness of the firm by choosing
terms of the convertible contract. A major implication of the risk-based models is that
firms that have higher uncertainty about risk of their assets such as high growth firms
are likely to be the major issuers of convertible debt. The risk-based models do not have
a clear cut role for the callability provision.
Constantinides and Grundy (CG, 1989) and Stein (1992) develop models in the
asymmetric information framework of Myers and Majluf (1984) in which managers
have superior information relative to investors about the risk and cash flows associated
with firm’s assets in place. Stein’s model is developed on the assumption that financial
distress is costly, and that excessive debt increases the probability of financial distress.
Stein argues that if firms privately know that their stock is undervalued, they prefer to
avoid issuing equity but also want to minimise the distress costs that come with debt
issuance. Convertible debt resolves this financing problem through ‘backdoor equity’
that has lower distress costs than debt financing but has smaller undervaluation
compared to equity financing. The call feature is critical in Stein’s model to force
investors to exercise their conversion option early, and to induce them to swap their
bonds for firm’s stock to help avoid financial distress. In CG’s model, on the other
hand, callability is not important but convertibles must be combined with a publicly
observed stock repurchase to have the desired separating equilibrium.
In a recent paper, Mayers (1998) develops the rationale for convertibles using agency
framework of Jensen (1986) in which managers have incentives to make inefficient
investment in the presence of free cash flow (overinvestment problem). Providing funds
upfront for both the initial project and the investment option sets up an incentive
conflict between the manager and investors because of the overinvestment problem.
Convertible bonds resolve this sequential-financing problem by controlling the over-
investment problem as well as economise on issue costs by avoiding multiple issues of
debt and/or equity. The call option is valuable in Mayers’ model because it provides
flexibility in financing future profitable investments as and when funds are needed.
Overall, while the call option is valuable in both Stein’s and Mayers’ models, there are
several notable differences between the two models. In Stein’s model, convertible issuers
are likely to have undervalued stock and high debt-to-equity ratio whereas in Mayers’
model they are likely to be high growth firms and may have overvalued stock at the time
of issue. Also, in contrast to Stein’s model, the asymmetric information in Mayers’
model is about the value of future investment option, not about the assets in place.
2.2. Empirical evidence
2.2.1. Survey evidence. Most of the empirical evidence on the rationale for convertibles
consists primarily of managerial surveys. The first such survey was conducted by Pilcher
in 1955 who asked managers to select between two choices for issuing convertibles: to
‘sweeten’ the debt and to issue as ‘delayed equity’. An overwhelming majority of respond-
ents (82%) chose ‘delayed equity’ as their main reason for using convertibles. These
findings were also confirmed by Brigham (1966) who documented that 73% of managers
reported that their primary motivation in issuing convertibles was to obtain equity
financing, and of those who preferred this response, about 68% also believed that their
stock price would rise over time. In contrast, Hoffmeister (1977) reported that only 34%
of respondents selected ‘delayed equity’ as their first choice from among seven rationales
for convertible issuance. He also found differences in industrial and financial firms; about
47% of the industrial firms picked ‘delayed equity’ while 41% of the financial firms
selected ‘debt sweetener’ as their first choice.
In a recent study, Billingsley and Smith (BS, 1996) survey managers on the motiva-
tions for convertible issuance as well as examine the relation between observed market
reactions to the use of the convertible debt and the stated motivations for its use. They
find that both ‘debt sweetener’ and ‘delayed equity’ are selected as the top two choices
by a similar number of managers and receive similar rankings. In addition, straight debt
is considered as the main alternative to convertibles (35%), followed closely by common
stock as the second choice (32%). They conclude that their findings, viewed in the
context of the earlier work, confirm a steady trend toward a decreasing reliance on
convertibles as delayed equity financing.
Graham and Harvey (GH, 2001) examine motivations of convertible issuance in a
managerial survey on capital structure policy. In contrast to the findings of BS (1996)
survey, they report that 58% of managers cite ‘delayed equity’ as the main reason for
using convertibles while only 42% cite that it is less expensive than straight debt. One
plausible explanation for this difference could be that while BS (1996) request a
response relative to a specific offering among firms that actually issue convertible
debt, GH (2001) condition only on whether a firm has seriously considered issuing
convertibles. BM (2002) conduct a survey of European managers on their capital
structure choices. Their findings are largely consistent with those in GH (2001) but
they report significant differences in managerial rankings of determinants of conver-
tible policy across European countries. For example, factors such as the ability to
‘call’ or the flexibility to force conversion are ranked the lowest in English law
countries, and the highest in the Scandinavian law countries while the reverse is true
for short-term equity dilution factor. French and German law countries’ managers, on
the other hand, assign very similar rankings to most factors.
2.2.2. Indirect evidence. Several studies provide indirect evidence pertaining to ratio-
nales of convertible issuance based on characteristics of convertible issuers, import-
ance of call provision, and stock price reaction to announcements of convertible
issuers.5 In general, evidence suggests that firms that have high growth opportunities
or high stock volatility tend to be the heavy users of convertible bonds, consistent
with most theoretical models. Further, evidence that most bonds are callable, and that
a large fraction of convertible bonds are ultimately converted is interpreted as con-
sistent with both Mayers’ and Stein’s models.6 A negative stock price reaction to
announcement of convertible issuance is consistent with Stein’s model as well as with
the pecking-order model of capital structure. While the US evidence generally sup-
ports a negative stock price reaction to convertible issuance, European evidence is
mixed and shows differences across countries.7
5
See Stein (1992), and Mayers (1998) and Harris and Raviv (1991) for a summary of this
evidence.
6
See for example, Asquith (1991) and Essig (1991)
7
For US evidence, see Dann and Mikkelson (1984), Eckbo (1986), and Mikkelson and Partch
(1986). These studies show that stock price reactions to convertible issues is, on average,
significantly negative (around 2%), but is less negative than for equity issues (about 3%)
and more negative than for straight debt issues (0.3%). For European evidence, see
Abhyankar et al. (1999) who document a negative reaction to convertible announcements in
the UK. and De Roon and Veld, (1998) who report a positive reaction to convertible
announcements in the Dutch market.

3. Methodology and sample characteristics
3.1. Survey design
Most previous surveys have focused mainly on the motivations of convertible issu-
ance. We design a more comprehensive survey questionnaire that includes questions
relating to all major aspects of convertible bonds to draw inferences pertaining to
different theoretical models. A major advantage of our approach is that it allows us to
investigate both demand and supply side factors of convertible bond issuance in the
same sample. A major cost of such an approach is that it requires more time from
managers to complete the survey, and consequently, is likely to result in a low
response rate.
The first draft of the survey was developed after a careful review of the theoretical
literature pertaining to the USA and European countries. The draft questionnaire was
tested by academics and financial executives, and was revised after incorporating their
feedback and suggestions. To increase the response rate, we limited the length of the
survey to two pages. The survey was anonymous and tests showed that it took
approximately 25–30 minutes to complete.
3.2. Initial sample
Our initial sample consists of all firms that had at least one convertible bond issue
listed on a European Stock Exchange in May 2002. From this list, we exclude firms
with exchangeable bond issues.8 These firms are identified by combining
several databases obtained from BNP Paribas, Exane, and Merrill Lynch, and by
examining the financial pages of European newspapers and European stock exchange
web sites. The final sample consists of 229 firms with 295 issues in 16 European
countries.
Table 1 presents breakdown of our sample by country and issue size. Five countries,
France, Italy, Netherlands, Switzerland, and the UK represent over 80% of the
convertible bond listings. France has the largest number of convertibles listed (98),
almost twice that for the UK (52) or Switzerland (43). The total market capitalisation
of our sample bonds is E98 billion. The French market is also the largest in terms
of market capitalisation of the bonds representing 32.4% of the total market,
followed by the UK (18%) and the Swiss (17.7%) markets. Table 2 reports
average firm size, debt-to-equity ratio, and annual sales for our sample issuers
for the year ending December 2001. There is a considerable variation in firm size,
total assets, average sales and leverage across countries and a majority of
issuers belong to manufacturing (21.8%), financial (17.9%), and technology (14%)
sectors.9
8
Exchangeable bonds have a call option written on a stock different from that of the issuing
firm and are commonly used by European firms to sell their cross-holdings in other firms.
9
Noddings et al. (2001) report that technology–media–telecommunication (TMT) group is the
largest market sector by market capitalisation, and it has replaced banks and insurance
companies that dominated the market for several years.

Table 1
Sample firms by country of origin.

Convertibles: Number of Number of Average convertible
market cap (E million) (%) issuing firms (%) convertibles listed (%) market cap (E million)
Austria 73 0.1 1 0.4 1 0.3 73

Belgium 2,113 2.2 6 2.6 8 2.7 352
Finland 965 1.0 6 2.6 7 2.4 161
France 31,774 32.4 76 33.2 98 33.2 418
Germany 4,136 4.2 14 6.1 14 4.7 295
Greece 319 0.3 1 0.4 1 0.3 319
Ireland 1,104 1.1 1 0.4 2 0.7 1,104
Italy 8,013 8.2 14 6.1 21 7.1 572
Netherlands 10,669 10.9 19 8.3 28 9.5 562
Norway 38 0.0 1 0.4 2 0.7 38
Convertible Debt Issuance
Poland 354 0.4 1 0.4 1 0.3 354

Portugal 1,610 1.6 3 1.3 4 1.4 537
Russia 100 0.1 1 0.4 1 0.3 100
Spain 863 0.9 3 1.3 4 1.4 288
Sweden 868 0.9 8 3.5 8 2.7 109
Switzerland 17,330 17.7 31 13.5 43 14.6 559
UK 17,605 18.0 43 18.8 52 17.6 409
Total 97,933 100.0 229 100.0 295 100.0 428
345
346
Table 2
Characteristics of sample firms.

Number Average market Average Total Median
of firms capitalisation (E million) sales (E million) assets (E million) debt ratio (%)
Austria 1 143 1,867 1,409 469

Belgium 6 10,389 7,185 2,900 75
Finland 6 754 2,827 2,893 131
France 76 4,235 7,723 16,809 79
Germany 14 7,076 22,411 22,379 153
Greece 1 3,995 1,789 19,585 31
Ireland 1 239 154 422 701
Italy 14 2,418 5,125 24,043 162
Netherlands 19 3,790 8,943 6,646 92
Norway 1 58 1 1,025 1043
Poland 1 51 420 331 1508
Portugal 3 5,336 4,920 17,135 85
Russia 1 924 439 973 31
Spain 3 22,343 21,146 2,921 118
Franck Bancel and Usha R. Mittoo
Sweden 8 4,262 6,782 8,897 51

Switzerland 31 11,935 8,974 14,172 32
UK 43 4,087 3,008 12,645 70
Total 229 5,480 10,445 13,919 75
3.3. Respondent firms
The survey was mailed to the chief financial officer (CFO) of all sample firms whose
names and addresses were available on the Bloomberg database.10 The first mailing
was undertaken in November 2002, followed by a second mailing in February 2003.
A total of 29 responses from eight countries were received by mail or by fax. This
represents a response rate of 12.7% and compares favourably with those of previous
surveys by GH (2001) and BM (2002). About half of the respondents are from France
which is not surprising since France dominates our initial sample representing about
one third of the sample.
Figure 1 presents characteristics of the respondent firms. Our sample is dom-
inated by large and medium size firms. Large (sales greater than E5 billion) and
medium size (sales between E1 and E5 billion) firms comprise over 88% of the
respondents. These proportions are very similar when book value of assets is used
to proxy firm size. The average (median) market capitalisation of the respondents is
about E5.9 (4.5) billion and it varies from minimum of E400 million to a maximum
of E30 billion. A majority of the respondent firms (55%) are also high growth firms
with price to earnings (P/E) ratio greater than 14. Most firms also have strong
international orientation; about 60% of them have a majority of their sales in
foreign countries, and about 25% are listed on the US exchanges. The long-term
debt-to-equity ratio was reported by about one third of respondents, and it varies
from 0.2 to 1 with an average of 0.55.
The respondent firms represent a wide variety of industries with a larger concentra-
tion in services and transport (about 25%) and manufacturing (17%). About 70% of
the firms are widely held public firms, with free-floating shares averaging about 50%
of the total shares outstanding. Most of them (77%) pay regular dividends, with
payout ratios ranging from 23% to 66%. Non-utility firms comprise over 80% of
the respondents. Overall, our sample represents a broad cross-section of firms from
different European countries.
4. Survey results
We first present a summary of managerial responses on all survey questions and

then examine correlations among different responses for a richer analysis. A summary
of the link between different theories and our survey evidence is presented in
Appendix 1.
4.1. Summary of managerial responses
4.1.1. Evidence on rationales for convertible issuance. (i) Major factors affecting
convertible issuance. We ask managers to rank the importance of different factors in
their decision to issue convertibles. These factors can be divided broadly in three
categories. The first set of factors is based on the implications of different models of
10
Data have been provided by BNP Paribas. The survey was mailed to the chief executive
officer (CEO) when the name of the CFO was not available.

A: Sales (millions euros) B: Assets (millions euros)

60% 70%
50% 60%
50%
40%
40%
30%
30%
20% 20%
10% 10%
0% 0%
<100 100- 1000- >5000 <100 100- 1000- >5000
999 4999 999 4999
C: Market capitalization
(million euros) D: Price/earnings ratio
50%
40%
40%
30%
30%
20% 20%
10% 10%
0% 0%
<1000 1000- >5000 <10 10-14 14-19 19-24 >24
5000
E: Foreign Sales (% of total) F: Industry
70% 30%
Manufacturing
Banks/diversified financial
Services/Transport
60%
25%
Consumer goods
Distributors
50% Retailers &
20%
Telecommunication
40%
Pharmaceuticals
Insurance
30% 15%
Energy/Utility
20%
10%
Media
10%
5%
0%
1%-9% 10%-24% 25%-50% >50%
0%
G: Other characteristics
100%
Pay
Free Float
Widely/ Utility/non- dividends
80%
closely utility
held
60%
40%
20%
0%
Public Private No Yes No Yes <=50% >50%
Fig. 1. Firm characteristics.
convertible bonds issuance discussed in section 2. The second set of factors is drawn
from the capital structure literature. For example, we ask managers questions on the
market conditions in issuing convertibles as evidence suggests that managers use
‘windows of opportunity’ to issue debt or common stock.11 Finally, the last set of
factors is based not on any theoretical considerations but on commonly held beliefs
among managers such as the potential impact of equity issue on earnings dilution. The
managers were requested to rank the importance of each factor on a scale of 0 to 4
(with 0 as not important and 4 as very important).
Table 3 presents the summary of managerial ranking of these factors. ‘Delayed
equity’ in the expectation that debt would be converted to equity is ranked as the most
important factor (mean rank ¼ 3.07), consistent with Stein’s ‘backdoor equity’ model.
About 86% of the CFOs rate this factor as either important (rating ¼ 3) or very
important (rating ¼ 4). The use of convertible debt to signal the firm’s future growth
opportunities to the market, consistent with both Mayers’s and BK’s models, is also
considered important or very important by 55% of managers (mean rank ¼ 2.41).
However, a direct implication of Mayers’ model that convertibles provide flexibility in
financing uncertain future investments as well as the callability provision which are
critical in both Stein’s and Mayers’ model, receive only modest support (mean rank
about 1.62). Factors relating to the risk-based models also receive less support. The
main implication of the BS (1988) model that convertibles help attract investors that
are unsure of the risk of assets is considered less important (mean rank ¼ 1.38)
whereas that of Green’s model that convertibles resolve concern of bondholders is
considered unimportant (mean rank ¼ 0.66).
There is strong evidence that managerial beliefs about capital structure also sig-
nificantly influence their decision on convertible debt issuance. Over 72% of managers
view convertible debt to be less expensive than straight debt (mean rank ¼ 2.72). This
evidence is consistent with ‘debt sweetener’ as a major motivation in issuing conver-
tibles as well as with Mayers’ model that emphasises the lower issuance costs as a
major advantage of issuing convertibles for sequential-financing needs. Further,
managers are also concerned about equity dilution similar to that in GH and BM
surveys; about 48% of managers agree that avoiding short-term equity dilution is a
major reason in issuing convertibles (mean rank ¼ 2.38). Other factors such as less
covenants, increasing book value of equity-to-debt ratio, tax advantage of interest
deductions, and ability to reach international investors are modestly important (mean
rank > 1) whereas following industry peers, and reducing threat of a hostile takeover
are considered unimportant (mean rank < 1).
Table 3 (Columns 4–19) also presents the univariate tests of differences in responses
based on several firm and offering characteristics that may affect convertible issuance.
There are significant differences on some dimensions. Not surprisingly, small firms
(with market capitalisation of less than E5 billion) value less covenants associated
with convertibles more than large firms do (mean rank 2.07 versus 1). Both small and
domestic oriented firms (with majority of sales in domestic market) also highly value
the ability to reach international investors through convertibles. Low growth firms
place a significantly higher value on tax deductibility of interest payments while non-
dividend paying firms value the ability to force conversion as well as the flexibility in
financing uncertain future investments. Frequent convertible issuers (with more than
two convertible issues outstanding) place higher value on convertibles as ‘delayed
equity’ compared to other issuers (3.36 versus 2.50), and on avoiding short-term
11
For example, see Korajczyk, Lucas, and McDonald (1991), and Bayless and Chaplinsky
(1996) for tests of window of opportunity hypothesis.

350
Table 3
Survey response to the question: ‘what factors have affected your firm’s decisions about issuing convertible debt?’
Respondents are asked to rate factors on a scale of 0 (not important) to 4 (very important). We report the overall mean as well as the percentage of
respondents that answered 3 and 4 (very important). ***, **, * denotes a significant difference as the 1%, 5%, and 10% level, respectively. The

differences in means based on selected firm and issue specific variables are also reported. These include: France (whether the firm is a French firm), Size
(large firms have market capitalization of at least of E5 billion), P/E (growth firms have P/E ratio greater than 14), Dividend (whether the firm pays
dividend or not), Trigger (whether the convertibles contain a trigger clause to force conversion), Nissue (high in firms with more than two convertible
issues outstanding), Use of funds (normal uses are for refinancing and capital budgeting purposes, special are for other purposes such as acquisitions),
and foreign sales (whether firm’s foreign sales are greater than 50% of total sales).
% Important France Size P/E Dividend Trigger Nissue Use of funds Foreign sales
or very
important Mean Yes No Small Large Growth Non-G Yes No Yes No Low High Normal Special < ¼ 50% >50%
(1) Convertibles were 85.71 3.07 3.57 2.57*** 2.86 3.31 3.22 3.00 3.10 3.00 3.06 3.13 2.50 3.36** 2.79 3.36 3.10 3.06
‘delayed equity’
financing, expecting
that the debt
would be converted
(7) Convertibles 72.41 2.72 3.21 2.27 2.93 2.38 2.90 2.44 2.64 2.83 2.88 2.56 2.36 2.86 2.73 2.45 2.45 2.82
were less expensive
than debt
(15) Convertibles 55.17 2.41 2.50 2.33 2.47 2.31 2.40 2.44 2.36 2.50 2.41 2.56 2.09 2.71 2.33 2.64 2.36 2.41
provide a good
signal to the market
about our future
growth opportunities
(2) Issuing convertibles 48.28 2.38 2.64 2.13 2.47 2.31 2.10 2.67 2.59 1.67 2.53 2.00 1.82 2.93** 2.53 2.36 2.91 2.06*
avoided short-term
equity dilution
(12) Convertible 34.48 1.62 2.00 1.27 2.07 1.00** 1.30 1.44 1.45 2.00 2.18 0.78*** 1.27 1.64 1.87 1.45 1.18 1.82

debt could be issued
with less covenants than
‘classical’ bonds
(3) Convertibles gave us 27.59 1.62 1.79 1.47 1.93 1.23 1.40 1.67 1.41 2.33* 1.76 1.33 1.45 1.36 1.80 1.55 1.45 1.71
the ability to ‘call’ or
force conversion of
debt if/when
we needed to
(11) Convertible debt was 25.00 1.32 1.62 1.07 1.60 0.83 1.10 0.67 1.19 1.50 2.00 0.56*** 1.09 1.23 1.67 0.80 1.27 1.25
a debt funding that did not
require a rating
(5) Issuing convertibles 21.43 1.29 1.00 1.57 1.20 1.42 1.50 1.13 1.50 1.17 1.31 1.22 1.45 1.00 1.20 1.40 1.10 1.41
increased the book value
of equity/debt ratio
(4) Convertibles allowed 20.69 1.38 1.29 1.47 1.67 1.15 1.90 1.33 1.65 1.20 1.41 1.11 1.36 1.36 1.40 1.27 1.82 1.18
us to attract investors
unsure about the risk
of our firm
(8) Convertibles induced 20.69 1.45 0.93 1.93*** 1.47 1.46 1.10 2.22** 1.41 1.67 1.47 1.11 1.45 1.43 1.47 1.64 1.36 1.53
tax advantage of interest
deductibility
351
352
Table 3
Continued.

or very
(13) Compared with debt, 17.86 1.36 1.31 1.40 1.87 0.75** 1.30 1.22 1.38 1.33 1.31 1.56 1.00 1.31 1.93 0.70** 1.91 1.00*
convertibles gave us the
ability to reach an
international investor
base
(14) Convertibles provide 17.86 1.64 1.85 1.47 1.47 1.83 1.60 1.33 1.43 2.33** 1.69 1.78 1.18 1.62 1.67 1.70 1.27 1.88
us flexibility in financing
uncertain future
investments as and
when we need
(9) Other firms in our 13.79 0.83 0.93 0.73 1.07 0.54 0.70 1.11 0.68 1.33 1.00 0.33 0.82 0.79 0.73 0.91 0.64 0.94
industry successfully
used convertibles
(6) Convertibles 3.45 0.66 0.86 0.47 0.53 0.77 0.60 0.44 0.50 1.17 0.59 0.89 0.73 0.64 0.60 0.73 1.00 0.41*
protected bondholders
against unfavourable
actions by managers
or stockholders
(10) Issuing convertibles 0.00 0.54 0.54 0.53 0.40 0.67 0.30 0.56 0.38 1.00 0.63 0.33 0.73 0.38 0.40 0.80 0.36 0.63
has helped us to
reduce the risk of
hostile takeover
equity dilution (2.93 versus 1.82). Firms that include a trigger clause to force conver-
sion also value less covenants and no rating required in convertibles. Interestingly,
French firms are more likely to issue convertibles as ‘delayed equity’, and are less
concerned with tax deductibility of interest compared to their other European coun-
terparts. Overall, the evidence suggests that convertibles appeal to different clienteles
for different reasons.
(ii) Alternatives to convertibles. We ask managers about what other financing
alternatives did they consider prior to issuing convertibles. This question is relevant
since in Stein’s model firms wish to issue equity but are unable to do so, whereas in
Mayers’, Green’s and BS’s models convertible debt is issued primarily as an alter-
native to straight debt. As shown in Figure 2A, about 70% of respondents consider
straight debt as an alternative to issuing convertible debt (mean rank > 2). In contrast,
only 23% and 16% of them seriously consider equity or other synthetic securities as
an alternative. We also ask managers an open-ended question on their main reasons
for selecting convertible over other alternatives, and code their responses in five broad
categories (see Figure 2B). Over 60% of managers cite factors such as lower coupon
than straight debt, callability provision, etc. as major determinants of their decision to
choose convertibles. Very few managers cite factors such as value of convertible as a
signal of the firm’s growth opportunities (Mayers’ model), and inability to issue debt
(Stein’s model) in their responses.
Another open-ended question related to the use of funds raised through converti-
bles. Most managers report that these funds were used primarily for refinancing
(35%) and capital budgeting activities (23%) (Figure 2C), consistent with evidence
in most previous studies. About 23% of firms also use funds for merger and acquisi-
tion activities. Very few managers report that proceeds were used for financing growth
activities, an implication of Mayers’ model, while none mentioned its use for stock
repurchase which is a direct implication of the Constantinidies and Grundy model.
B: Factors that influenced selection of

A: Alternatives to issuing convertibles convertibles
80% 75%
market conditions
atractive features
60% 60%
investor base
40% 45%
good signal
constraint
30%
20%
15%
0%
Straight debt Common stock Other convertible 0%
Mean rank over 2
C: Major uses of the funds from
convertibles D: Net benefits of convertibles relative to alternatives
40% considered
60%
refinancing
acquisition
capital budgeting
50%
30%
growth opport.
40%
30%
20%
constraint
20%
10%
10%
0%
Significantly Marginally Neutral Marginally Significantly
0% positive positive negative negative
Fig. 2. Alternatives for convertibles.

We also asked respondents about their perceived net benefits in issuing convertibles
versus other alternatives. About 86% of respondents perceive that net benefits are
significant positive or marginally positive compared to the alternative considered (Figure
2D). It is noteworthy that managers perceive positive net benefits despite reporting a
negative impact on their firm’s stock price at the time of issuance (see next section).
(iii) Market-specific factors. To examine whether managers use ‘windows of oppor-
tunity’ when issuing convertibles, similar to that in debt or equity case, we ask
managers about the influence of market conditions at the time of the issuance on
their decision. Summary of their responses is provided in Table 4, and the evidence
supports that managers try to time the market in the case of convertibles also. Over
half of the respondents agree that both low interest rate environment and high stock
market volatility were important or very important in their decision to issue conver-
tibles (mean rank about 2.6). Further, the percentage of managers who perceive their
firm’s stock to be undervalued (35%) at the time of issuance is very similar to those
who consider it to be overvalued (38%), supporting both Stein’s and Mayers’ models.
About one third of respondents also agree that liquidity of convertible market is
important or very important in issuing convertibles. Interestingly, this factor is valued
much higher by the French respondents. Not surprisingly, firms that issue converti-
bles to finance special projects such as merger and acquisitions care less whereas
frequent issuers care more for market conditions when issuing convertibles.
In asymmetric information framework models, market reaction to convertible bond
announcements is expected to be negative. Figure 3.A summarises managerial
responses on market reaction to convertible issues. Over 62% of managers report
that the market reaction to the convertible issue was negative (only 5% report a
positive market reaction), consistent with that reported in most previous studies. The
mean (median) percentage impact on stock price is 3.5 (4)% and it ranges from a
minimum of 10% to a maximum of þ5%.
(iv) Conversion policy. We also ask CFOs about major factors that determine their
firm’s conversion policy which is critical in both Stein’s and Mayers’ models. Table 5
summarises their responses and we find mixed support for both models. While about
28% of firms agree that forcing the conversion would be done when future investment
opportunities occur, consistent with Mayers’ model, about 31% also agree that
conversion of the issue is not important to them, inconsistent with both Mayers’
and Stein’s models. Further, about one-third of managers are also concerned that
forcing the conversion would impact the earnings per share significantly. There are
some differences in responses based on firm and offering characteristics. Large firms
are more concerned than small firms that forcing the conversion would dilute earnings
(mean of 2.55 versus 1.38). High growth firms plan conversion as and when future
investment opportunities arise, and care less about loss of tax deductibility, consistent
with Mayers’ model. Not surprisingly, managers who are concerned that conversion
close to the premium would be unpopular with the investors as well as those who
prefer indirect conversion through raising dividends are also less likely to include a
trigger clause. Overall, the wide variation in managerial views on conversion policy
documented in our survey is consistent with that reported in Brigham (1966) survey.12
12
Brigham reports that only 23% of managers planned to force conversion as soon as it is
assured, another 23% planned to encourage conversion by raising dividend, and the remaining
53% had no clear plan of conversion.

Table 4
Survey response to the question: ‘how has your decision to issue convertibles been affected by market conditions?’

Respondents are asked to rate factors on a scale of 0 (not important) to 4 (very important). We report the overall means as well as the percentage of
(large firms have market capitalization of at least of E5 billion), P/E (growth firms have P/E ratio greater than 14), Dividend (whether the firm pays
dividend or not), Trigger (whether the convertibles contain a trigger clause to force conversion), Nissue (high is firms with more than two convertible
or very
(2) Stock market 66.67 2.59 2.64 2.54 2.85 2.46 3.00 2.63 2.90 1.60*** 2.41 3.13 2.11 2.93* 3.08 1.82*** 2.70 2.63
volatility was high
(1) Interest rates 53.37 2.61 2.71 2.50 2.86 2.23 3.10 2.38 2.59 2.40 2.53 3.11 2.60 2.57 3.00 2** 2.55 2.56
were low
(5) Our stock price 38.46 1.81 2.21 1.33 1.33 2.38 1.88 1.75 1.75 2.40 1.76 2.00 0.89 2.46 1.58 2.27 1.89 1.88
was currently high
and with convertibles
we locked in a
favourable premium
355
356

Table 4
Continued.
or very
(4) Our stock was 34.62 1.81 1.77 1.85 2.08 1.50 2.33 1.63 2.00 1.00 2.06 1.22 1.90 1.83 1.85 1.60 1.70 1.87
currently undervalued
and issuing convertibles
was a better choice
(6) The convertible debt 33.33 2.11 2.54 1.71** 2.14 2.00 2.10 2.00 1.95 2.60 2.38 1.89 2.10 2.00 1.79 2.20 1.64 2.40**
market in our country
is well organized and
highly liquid
(3) We could not issue 23.08 1.35 1.31 1.38 1.38 1.17 1.00 0.75 1.35 1.00 1.81 0.38 1.22 1.31 1.46 1.40 1.40 1.20
new debt or shares
(because of
market conditions, legal

constraints, etc)
A: Market reaction to convertible issue B: Major holders of convertibles

80% 100%
80%
60% 60%
40%
40%
20%
20% 0%
Institutional Hedge Banks Private Others
0% investors funds placement
Negative Positive No impact Average holding (%) Holders (%)
Fig. 3. Major holders of convertibles and market reaction at the time of issue.
This variation may partly explain the puzzling empirical evidence that not all firms
call their convertible bonds as soon as they become callable, and some bonds even
expire without being called as documented in studies such as Asquith (1991).
4.1.2. Other factors. (i) Demand of convertibles. To examine the importance of the
demand side factors, we ask managers about the holders of their bonds at the time of
the issue. Their responses are summarised in Figure 3B. An overwhelming majority of
convertibles (over 80%) at the time of issue are placed with institutional investors,
with an average holding of about 55%. Hedge funds are also major investors in
convertible bonds with about 34% of the average holding. In comparison, banks
and private investors hold relatively small percentage of convertible bonds.
(ii) Design of convertible securities. A major advantage of a convertible bond is that
its design can be adjusted to make it look more like debt or equity type security by
varying its features such as call protection, maturity, and conversion price. Several
recent studies have focused on this aspect of convertibles by extending Stein’s and
Mayer’s models. For example, Lewis et al. (1998a) extend Stein’s model to incorporate
the case in which firms that are more confident about their future prospects issue
convertibles with shorter call protection periods and find support for this prediction.
Lewis et al. (1998b) also find evidence that those firms that are predicted to issue
equity are likely to issue convertibles that are more equity-like, and those that are
predicted to issue debt issue more debt-like convertibles. Korkeamaki and Moore
(2002) provide evidence of a connection between issuers’ investment patterns follow-
ing the convertible issue and call protection terms on their issues as implied in Mayers’
model. Korkeamaki (2002) finds that call protection of convertible issues varies across
different legal system countries defined in La Porta et al. (1997, 1998); firms in
countries with strong shareholder rights protection tend to issue convertibles with
soft protection whereas those in countries with weak shareholder rights tend to issue
convertibles with hard call protection.
We ask managers several questions on features of their firm’s latest convertible
bond issue. Figure 4 shows that there is a wide variation in these features. The average
(median) issue size is E520 (400) million with over 90% of issues being over E100
million. As a percentage of asset size, the average (median) issue size is 10.7 (7.5)% but
it varies from a minimum of 1% to a maximum of 50%. A majority of the convertibles
(66%) have a trigger clause to force conversion, but very few convertibles have any
pre-emptive rights or other covenants. There is also a wide variation in initial and
trigger premium. While some convertibles are issued at par, others have initial pre-
mium as high as 131.5% of the par value. Mean (median) trigger premium is 28 (30)%
358
Table 5
Survey response to the question: ‘what factors are important in determining your conversion policy?’

(large firms have market capitalisation of at least of E5 billion), P/E (growth firms have P/E ratio greater than 14), Dividend (whether the firm pays
or very
(1) Forcing the conversion 32.00 1.92 2.08 1.75 1.38 2.55*** 2.00 2.13 1.90 2.00 1.82 2.00 1.43 2.29 1.85 2.22 1.60 2.14
would impact significantly
the EPS
(6) Conversion of the issue 31.58 2.05 2.00 2.09 2.00 2.14 2.00 2.33 1.93 2.50 2.00 2.13 2.14 1.89 1.64 2.50 2.27 1.75
is not important to us
(5) Forcing the conversion 27.78 1.44 2.00 1.09 1.58 1.17 1.86 0.67* 1.47 1.33 1.30 1.57 0.83 1.78 1.64 1.60 1.90 0.88*
would be done as and when
future investment opportunities
occur
(3) Forcing the conversion close 9.09 1.14 0.80 1.42 0.92 1.40 1.25 1.00 1.22 0.75 0.79 1.71** 1.33 1.08 1.42 0.86 1.20 1.08
to the call premium would be

unpopular with the investors
(2) Forcing the conversion 8.33 1.13 0.83 1.42 1.08 1.20 1.00 1.86* 1.26 0.50 0.94 1.57 1.43 1.15 1.25 1.00 1.30 1.00
would mean loss of tax
deductibility of interest
(4) Forcing the conversion 0.00 0.86 0.70 1.00 1.00 0.70 1.00 1.00 0.89 0.75 0.64 1.43** 1.33 0.67* 1.25 0.43** 0.90 0.83
indirectly through raising
dividend is better
A: Issue Size (¤ million) B: Features of the last convertible issued

60% 100%
50%
80%
40%
30% 60%
Preemptive Trigger Specific
20% rights clause covenants
40%
10%
0% 20%
<100 100-500 500-1000 >1000
0%
No Yes No Yes No Yes
C: Issued debt, equity or convertible in the last ten D: Number of times convertibles issued
years in the last ten years
100% 50%
80% 40%
Issued Issued Issued
60% 30%
debt Convertible Equity
40% 20%
20% 10%
0% 0%
No Yes No Yes No Yes
1 2 3 4 5 6 7
Fig. 4. Characteristics of convertibles offerings.
but it ranges from par value to 150% of the par value. Most of the issues also have a
credit rating, and about half of them have a rating of A and above. This is consistent
with Noddings et al. (2001) who report that over two-thirds of European convertibles
are rated investment grade by Moody’s or Standard and Poor, and a majority of non-
rated convertibles are from financially strong companies. This large variation in the
characteristic of convertibles in our sample indicates that firms adjust various features
of convertible bonds to fit their special financing needs.
We also ask CFOs questions on their capital structure policies. About 63% of
respondents have a target debt-to-equity ratio, and about half of them maintain a
target ratio of about 0.50. The convertible issuers also appear to frequently access the
capital markets. As Figure 4C shows, about 80% of the convertible issuers have issued
debt or equity, and almost all of them (95%) have also issued convertible debt during
the past ten years. About half of our sample issuers have over two convertible issues
outstanding but only a few of them have issued other synthetic securities during the
last ten years.
(iii) Role of investment advisor. Since convertible bond designing can be a complex
task, the investment advisor is likely to play a key role in this aspect. A majority of
managers report that investment advisor played a medium level role in their decision
to issue convertibles. We also ask the CFOs how they selected their investment
advisor and what help did the advisors provide. The summary of responses is
provided in Table 6. Good relationship with investment bank (mean rank ¼ 3.04)
and its reputation (mean rank ¼ 2.65) are cited as the most important criteria in
selecting the investment bank. Other important factors include banking relationship
and pricing (mean rank > 2). Investment banks also played a major role in pricing and
designing the convertibles; about 56% of the respondents considered their help in
these aspects as important or very important (mean rank ¼ 2.68). Investment banks
also help firms in evaluating other alternatives but their advice to issue convertibles is
based largely on favourable market conditions. Not surprisingly, there are significant
differences in small and large firms. Larger firms and frequent users of convertibles
360
Table 6
Survey response to the question: ‘how did you select your investment advisor and what was the major help/advice given by your investment bank?’

(large firms have market capitalisation of at least of E5 billion), P/E (growth firms have P/E ratio greater than 14), Dividend (whether the firm pays
or very
(1) We had a very good 76.92 3.04 2.75 3.29* 3.29 2.82 2.75 3.22 3.05 3.20 3.06 2.88 3.22 2.92 3.27 2.78 3.10 3.07
relationship with the
investment bank that
advised us
(3) We have chosen the 65.38 2.65 2.67 2.64 2.86 2.45 2.63 2.78 2.75 2.40 2.75 2.38 2.67 2.62 2.60 2.56 2.70 2.67
investment bank that
was the most famous
convertible specialist
(reputation)
(6) The investment bank 58.33 2.50 2.64 2.38 3.00 1.80*** 2.00 2.33 2.33 3.00 2.73 2.00 2.75 2.17 2.50 2.50 2.50 2.46
has advised us to issue
convertibles because of
favourable market
conditions
(8) The investment bank 56.00 2.68 2.50 2.85 3.08 2.27** 2.43 2.89 2.63 3.00 2.69 2.57 3.00 2.46 2.86 2.56 2.90 2.57
has helped us in pricing
and designing the
convertibles (call policy, etc)
(2) We have selected as 46.15 2.12 2.75 1.57** 2.00 2.27 1.75 2.00 2.05 2.40 2.63 1.38** 1.67 2.31 2.00 2.22 1.40 2.60**
adviser a bank that was
also able to finance us
(lending money)
(4) We have chosen our 38.46 2.19 2.08 2.29 1.86 2.45 2.25 1.78 2.10 2.20 2.06 2.38 2.00 2.23 2.20 2.22 2.20 2.07
investment bank for
pricing issues
(the bank that offered the
best pricing)
(9) The investment bank 28.00 1.72 1.42 2.00 2.00 1.18* 1.00 2.11** 1.47 2.20 1.81 1.57 2.25 1.38* 1.57 2.11 1.70 1.57
has helped us in evaluating
other alternative securities
versus convertibles
(5) We have chosen our 26.92 2.04 1.83 2.21 1.79 2.18 2.25 1.89 1.95 2.00 1.81 2.50 2.33 1.77 2.13 1.89 1.90 2.00
investment bank for fees
conditions (low fees)
(7) The investment bank 12.50 1.63 1.45 1.77 2.08 1.00*** 1.14 1.89 1.39 2.40** 1.53 1.43 2.25 1.17** 1.93 1.25 1.40 1.77
has explained to us the
advantages of convertibles
and has influenced us
361
rely less on investment bankers for advice and designing compared to their smaller
counterparts, similar to the findings in BS (1996). Overall, the evidence supports that
investment bankers play a major role in designing and pricing the security.
In sum, our survey findings are largely consistent with those of Hoffmeister (1977),
and BS (1996) in that both ‘delayed equity’ and ‘debt sweetener’ are considered
important reasons for issuing convertible bonds by a similar percentage of managers.
The concern about EPS dilution is consistent with those in GH and BM surveys as the
major factor in driving equity policy. Overall, there is mixed evidence for different
theories on convertible issuance. Further, evidence also supports that managers highly
value the flexibility of design in convertibles to look ‘debt’ like or ‘equity’ like
securities and use ‘windows of opportunity’ for convertible issuance.
4.2. Correlation analysis
Table 7 presents Spearman rank correlation coefficients of survey responses. Panels A

and B presents correlations of major factors that affect convertible issuance decision
(Table 3) with alternatives considered, market conditions, determinants of conversion
policy and with the issuer and issue characteristics used in cross-tabulations in
Tables 3–6.13
The correlation analysis largely confirms the results of the previous section. First,
mixed support for different theories on rationale for convertible issuance is clear from
Panel A. For example, managers who issue convertibles as ‘delayed equity’ are less
likely to consider debt as an alternative (Corr. ¼ 0.40**), consistent with Stein’s
model but are more likely to state that their stock is overvalued (Corr. ¼ 0.54***),
contrary to his model. Similarly, managers who value convertibles for financing
uncertain future investments tend to value flexibility of callability provision
(Corr. ¼ 0.30*), consistent with Mayers’ model, but do not appear to set their con-
version policy to finance growth opportunities (Corr. ¼ 0.04), as implied by his model.
Second, evidence shows that determinants of debt and equity policies also affect the
convertible debt policy. The concern about earning per share dilution, an important
determinant of equity policy, is also a primary motivation for convertible issuance.
Managers who perceive their firm’s stock to be overvalued are more likely to issue
convertibles as ‘delayed equity’ (Corr. ¼ 0.54***) to avoid short-term equity dilution
(Corr. ¼ 0.24). Managers who view convertible debt to be less expensive than straight
debt also use ‘windows of opportunity’ by issuing convertibles when interest rates are
low (Corr. ¼ 0.52***).
Third, Panel B shows that motivations for convertible issuance vary significantly
across firms. Small and medium size firms highly value the access to international
investors (Corr. ¼ 0.53***), and less covenants (Corr. ¼ 0.56***) provided by
convertibles. Large firms, on the other hand, tend to have overvalued stock
(Corr. ¼ 0.35*), and are more concerned about equity dilution at conversion
(Corr. ¼ 0.36*). As expected, high growth firms are more likely to plan their conver-
sion policy to finance future growth opportunities (Corr. ¼ 0.61**), and care less
about tax deductibility (Corr. ¼ 0.59***). French firms are more likely to issue
convertibles as ‘delayed equity’ (Corr. ¼ 0.60***), view them as less expensive than
13
For brevity, we focus only on those motivations or factors that are identified as important by
managers (mean rank > 1).

Table 7
Spearman correlations between survey responses and issuer and offering characteristics.
Spearman correlations between survey responses are reported. ***, **, * denote significant difference in means (medians) at the 1%, 5%, and 10% levels,
respectively.
Panel A: Factors in convertible issuance (Table 3): Delay Equi. (‘‘delayed equity’’ financing), Avd. EPS (avoided short-term equity Dilution), Callability
(ability to ‘‘Call’’), Risk Un. (attract inverstors unsure about the firm risk), BV D/E(increases book value of equity/debt), Less Exp. (less expensive than
debt), Tax Adv. (tax advantage of interest deductibility), No Rat. (did not require a rating), Less Covn. (less covenants than bonds), Intl. Inv. (the ability
to reach international investors), Fut. Fin. (flexibility in financing uncertain future investments), Signal (a good signal to the market about future growth

opportunities); Alternatives (Fig. 2A): Debt (straight debt), Equi. (common stock); Market conditions (Table 4): Low Rate (low interest rates), High
Volt. (high stock market volatility), Can’t Issue (could not issue debt or shares), Und. Val. (stock was currently undervalued and issuing convertibles
was a better choice), Over Val. (stock price was currently high), MkLiq (convertible debt market is liquid); Factors in conversion policy (Table 5):
Imp. EPS (conversion would impact the EPS), InvtOpp (conversion would be done as and when future investment opportunities occur), Not Imp
(conversion of the issue is not important to the issuing firm).
Panel B: France (whether the firm is a French firm), Size (market capitalization in million euros), P/E (average price to earning ratio for last 3 years),
Divd. (whether the firm pays dividend or not), Trigger (whether the convertibles contain a trigger clause to force conversion), Nissue (number of
issues outstanding), Use of funds (normal uses are (1) refinancing, and (2) capital budgeting, special are (3) distress situation, (4) acquisitions, and (5)
growth), FRN sales (whether firm’s foreign sales are greater than 50% of total sales), NetBenefits (net benefits of convertibles rated from significantly
negative to significantly positive), and Mkt.Reaction (approximate % impact on stock price when convertibles were issued).
Factors affecting firm’s decision to issue convertibles Alternatives Market conditions Factors in conversion policy
(Table 3) (Fig. 2A) (Table 4) (Table 5) Firm and offering characteristics (Tables 3–6)
Delay Avd Callab Risk BV Less Tax No Less Intl. Fut. Low High Can’t Und Over Imp. Invt Not Use FRN Net
Equi. EPS ility Unc. D/E Exp. Adv. Rat. Cov. Inv. Fin. Signal Debt Equi. Rate Volt. Issue Val. Val. MkLiq EPS Opp Imp France Size P/E Divd. Trig. Nis. funds sales Ben.
Panel A
Avd. EPS 0.49***

Callability 0.16 0.24
Risk Un. 0.06 0.15 0.36*
BV D/E 0.02 0.06 0.40** 0.33*
Less Exp. 0.02 0.14 0.39** 0.19 0.08
Tax Adv. 0.11 0.31 0.31* 0.24 0.54*** 0.11
No Rat. 0.05 0.08 0.35* 0.11 0.07 0.33* 0.33*
Less Covn. 0.08 0.08 0.47*** 0.05 0.09 0.39** 0.05 0.71***
Intl. Inv. 0.19 0.48*** 0.59*** 0.29 0.22 0.26 0.19 0.36* 0.31*
Fut. Fin. 0.37* 0.07 0.30* 0.22 0.42** 0.05 0.09 0.18 0.16 0.42**
Signal 0.17 0.43** 0.08 0.29 0.03 0.06 0.21 0.35* 0.15 0.16 0.28
Debt. 0.40** 0.20 0.01 0.16 0.24 0.02 0.15 0.12 0.14 0.23 0.03 0.06
Equi. 0.21 0.20 0.09 0.24 0.03 0.02 0.35* 0.17 0.11 0.00 0.17 0.10 0.24
Low Rate 0.01 0.05 0.24 0.17 0.10 0.52*** 0.13 0.14 0.08 0.26 0.11 0.18 0.24 0.16
High Volt. 0.01 0.28 0.01 0.10 0.41** 0.19 0.30 0.06 0.06 0.34* 0.03 0.22 0.39** 0.32 0.42**
363
364
Table 7
Continued.

Can’t Issue 0.04 0.08 0.16 0.03 0.06 0.09 0.00 0.60*** 0.62*** 0.10 0.08 0.19 0.18 0.16 0.05 0.11
Und. Val. 0.05 0.11 0.14 0.50*** 0.09 0.22 0.12 0.15 0.17 0.02 0.44** 0.17 0.29 0.42** 0.04 0.13 0.22
Over Val. 0.54*** 0.24 0.08 0.10 0.10 0.01 0.16 0.11 0.12 0.11 0.12 0.05 0.21 0.05 0.08 0.03 0.06 0.25
MkLiq 0.13 0.22 0.10 0.06 0.00 0.41** 0.38* 0.43** 0.50*** 0.15 0.04 0.16 0.25 0.19 0.15 0.00 0.32 0.12 0.26
Imp. EPS 0.19 0.23 0.19 0.12 0.13 0.05 0.20 0.31 0.02 0.32 0.01 0.03 0.07 0.16 0.02 0.02 0.15 0.02 0.54*** 0.07
InvtOpp 0.22 0.29 0.24 0.30 0.19 0.31 0.37 0.31 0.42* 0.38 0.04 0.03 0.44* 0.00 0.24 0.33 0.12 0.02 0.32 0.08 0.30
Not Imp 0.29 0.13 0.31 0.24 0.06 0.56** 0.11 0.11 0.39 0.23 0.13 0.03 0.34 0.10 0.32 0.23 0.02 0.36 0.12 0.24 0.37 0.36
Panel B
France 0.60*** 0.19 0.14 0.070.25 0.50***0.46*** 0.21 0.28 0.08 0.21 0.11 0.28 0.04 0.09 0.08 0.01 0.06 0.29 0.39** 0.09 0.31 0.04
Size 0.15 0.03 0.39**0.230.080.24 0.06 0.42** 0.56*** 0.53*** 0.03 0.06 0.24 0.07 0.16 0.00 0.11 0.17 0.35* 0.15 0.36* 0.32 0.34 0.08
P/E 0.12 0.35 0.19 0.17 0.01 0.18 0.59*** 0.16 0.06 0.07 0.07 0.10 0.09 0.01 0.29 0.26 0.14 0.31 0.03 0.23 0.02 0.61** 0.21 0.03 0.06
Divd. 0.02 0.26 0.30 0.090.220.15 0.10 0.12 0.17 0.01 0.32*0.02 0.18 0.28 0.03 0.41** 0.09 0.300.18 0.30* 0.02 0.01 0.17 0.04 0.19 0.04
Trigger 0.08 0.21 0.17 0.15 0.02 0.21 0.16 0.51*** 0.52*** 0.10 0.07 0.13 0.21 0.45**0.300.41** 0.59*** 0.300.07 0.25 0.05 0.11 0.06 0.30 0.13 0.35 0.04
Nissue 0.36* 0.41**0.12 0.150.290.01 0.00 0.03 0.14 0.03 0.15 0.20 0.05 0.37* 0.13 0.22 0.22 0.21 0.47** 0.08 0.26 0.10 0.20 0.23 0.22 0.10 0.39* 0.46**
Use of 0.26 0.04 0.06 0.02 0.150.09 0.11 0.45** 0.33* 0.34* 0.10 0.31 0.53*** 0.45**0.330.45** 0.27 0.15 0.26 0.08 0.00 0.22 0.45* 0.26 0.34* 0.13 0.16 0.04 0.15
funds
FRN 0.16 0.32* 0.13 0.23 0.10 0.15 0.06 0.14 0.38** 0.27 0.20 0.04 0.13 0.22 0.02 0.01 0.11 0.090.09 0.35* 0.17 0.35 0.30 0.15 0.02 0.00 0.20 0.30 0.02 0.08
sales
Net- 0.26 0.37** 0.27 0.100.02 0.06 0.30 0.03 0.32* 0.27 0.15 0.22 0.12 0.33 0.01 0.17 0.13 0.13 0.16 0.11 0.33 0.16 0.21 0.07 0.16 0.44* 0.27 0.33* 0.53*** 0.09 0.12
Benefits
Mkt. 0.21 0.15 0.42* 0.220.380.36 0.41* 0.03 0.14 0.34 0.17 0.44* 0.19 0.34 0.050.09 0.03 0.07 0.51** 0.12 0.40* 0.36 0.06 0.06 0.43* 0.16 0.50** 0.01 0.31 0.090.30 0.11
Reaction
straight debt (Corr. ¼ 0.50***), and cite liquidity of the convertible market as a major
factor in their issuance (Corr. ¼ 0.39**), compared to other European firms.
Finally, evidence also suggests that firms use different convertible features to adapt
them to their individual needs. For example, firms issuing convertibles as an alter-
native to equity are more likely to have a trigger clause (Corr. ¼ 0.45**) compared to
those issuing them as an alternative to debt (Corr. ¼ 0.21). High growth firms are
more likely to force conversion policy as and when investment opportunities arise
whereas large firms tend to be more concerned that forcing conversion would impact
EPS (Corr. ¼ 0.36*). These cross-sectional differences suggest that firms may adjust
different features of convertibles to adapt them to their individual needs. This could
partly explain why most firms perceive net benefits of issuing convertibles to be
positive despite reporting a negative stock market reaction (Corr. ¼ 0.11).
5. Summary and conclusions
Why convertible bonds are such a popular financing vehicle has been a puzzling
phenomenon for financial researchers. Survey methodology has been commonly
employed to examine theories pertaining to rationale of convertible issuance. Our
study updates previous survey evidence by examining this issue in the European
convertible market that has witnessed a dramatic growth in the late 1990s.
Our analysis supports four main findings. First, we find mixed support for most
theories on convertible issuance. For example, the importance of ‘delayed equity’ in
the survey responses is neither related to depressed stock price, nor to the inability of a
firm to issue equity or to the importance of call provision, as suggested by Stein’s
‘backdoor equity’ model. In fact, firms that issue convertibles as ‘delayed equity’ also
tend to have ‘overvalued stock’ and cite avoiding equity dilution as a major motiva-
tion in issuing convertibles. Similarly, managers who value the flexibility of conver-
tibles in future financing tend to have overvalued stock consistent with Mayers’
model, but do not appear to set their conversion policy to achieve this goal of future
financing suggested by Mayers. Overall, there is moderate support for Stein (1992),
Mayers (1998), Brennan and Kraus (1987), Brennan and Schwartz (1988) models but
less support for Green (1984) and Constantinides and Grundy (1989) models (for a
summary of evidence see Appendix 1).
Second, it appears that the need for financial flexibility and concern for earnings
per share dilution documented in capital structure surveys by Graham and Harvey
(2001) and Bancel and Mittoo (2002) also influence the issuance of convertibles. Firms
with overvalued stock tend to use ‘delayed equity’ to avoid short-term equity dilution
rather than ‘instant equity’ to lock in their favourable premium. Equity dilution
remains one of the dominant concerns for about one third of the managers even in
setting their conversion policy. Firms also use ‘windows of opportunity’ by issuing
convertibles rather than straight debt in times of low interest rates to obtain lower
coupon rates.
Third, major motivations for issuing convertibles vary widely across firms. There is
a large variation in convertible features such as initial conversion premium, trigger
clause, and maturity of convertibles issued by the respondents. There is also variation
across countries. French managers value convertibles primarily as ‘delayed equity’
and are less concerned about the tax advantage compared to their other European
peers. This evidence suggests that popularity of convertibles may be driven primarily
by their versatility in adjusting their design to meet the individual financing needs of
different clienteles.
Finally, our evidence also supports that both demand and supply side factors have
contributed to the surge of convertible bond market in Europe as argued by Noddings
et al. (2001). A majority of holders of bonds in our sample are institutional and hedge
funds and about one fourth of these convertibles are issued for merger and acquisi-
tions. French issuers consider the liquidity of their convertible market as a major
factor in the increased use of convertibles consistent with Noddings et al. (2001). The
euro denomination of the European convertibles also appears to be a major advan-
tage in accessing the international investors, especially for smaller and medium size
firms who also tend to rely more on the investment banker for their advice. In
contrast, large firms are most frequent users of convertibles, and rely less on the
advice of investment banks.
Our results should be interpreted with some caution since they are based on a small
number of respondents. Our sample includes very few technology firms that were the
major issuers of bonds, and is biased towards large and medium size firms. Further,
we have also not examined the population of firms that do not issue convertibles.
Despite these limitations our study provides some useful evidence on European
convertibles. Moreover, our main finding that convertibles appeal to different clien-
teles is based on the large cross-sectional variation observed in the characteristics of
convertible issues and issuers, conversion policy, and holders of these bonds. This
cross-sectional variation exhibited in our small sample is likely to increase even more
in a larger sample.
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368
Appendix 1
Summary of the relation between survey evidence and factors influencing convertible bond issuance.
A theoretical concept or factor is listed in the first column, followed by its empirical implications (second column), the direct survey evidence (column 3),
p
and any additional evidence in column 4. () indicates whether the survey evidence supports (does not support) the idea in the first column.
Survey evidence (direct) Other survey evidence

Theory or concept Empirical implications (Tables 3–6, Fig. 1–4) correlation analysis (Table 7)
1. Rationale for convertible Issuance

A. Risk based models
1. Uncertainty about Risk
(Brennan and Schwartz (1988)
p
Main features/assumptions: Implications: Attract investors unsure of risk (21%, Table 3) Firms issuing convertibles to attract
Uncertainty of risk about 1. To attract investors investors unsure of risk:
p
assets in place ‘unsure’ of risk tend to have undervalued stock
Solves financing problem (Corr. ¼ 0.50***)
at the time of issue tend to value flexibility of callability
(Corr. ¼ 0.36*)
p
2. Alternative to debt issue Alternative to debt issue (70%, Figure 2)
3. Firm characteristics
p
-High growth firms High growth firms
-Industries with High (55% P/E > 14, Figure 2)
Earnings Volatility Other industry peers use
convertibles (14%, Table 3)
p
4. Call provision Conversion is not important
-Not important (32%, Table 5)
Ability to ‘call’ important

(28%, Table 3)
2. Brennan and Kraus (1987)
Uncertainity of risk about assets 1. To attract investors ‘unsure’ of risk Attract investors unsure of risk
Asymmetric information framework (21%, Table 3)
p
2. Convertible debt used as a signal Good signal about growth opportunities
(55%, Table 3)
p p
3. ‘Risk’ conveyed by varying features Large cross-sectional variation in Firms that use convertibles as
convertible features across firms signal tend to have less negative
stock price reaction (Corr. ¼ 0.44)
3. Risk-shifting (Green, 1984)
Main features/assumptions: Implications:
Agency problem between 1. Protects bondholders against Protect bondholders against unfavourable
shareholders and bondholders ex post risk shifting by shareholders actions of shareholders or managers.
(3%, Table 3)
p
Concern about ex post risk shifting 2. Alternative to debt Alternative to debt issue (70%, Figure 2)
p
Convertibles resolve financing and 3. Less expensive than debt Convertible are less expensive than debt
risk incentive problems (72%, Table 3)

p p
4. Call provision Conversion is not important (32%, Table 5) Firms considering convertibles as less
-Not important Ability to ‘call’ important (28%, Table 3) expensive tend to consider the call
provision unimportant (Corr. ¼ 0.56**)
B. Asymmetric
information framework
1. ‘Backdoor equity’ model (Stein, 1992)
p
Asymmetric information 1. Backdoor equity Delayed equity major reason (86%, Table 3)
about assets in place Issuer optimistic about conversion
p p
Solves a financing 2. Alternative to an equity issue Alternative to equity issue (23%, Figure 2) Firms issuing convertibles as ‘delayed
problem at the time of issue equity’ are less likely to consider debt
(Corr. ¼ .40**) and more likely to consider
equity (Corr. ¼ 0.21) as alternative
Firms wish to issue equity Alternative to debt issue (70%, Figure 2)
but are unable to do so.
Financial distress costly 3. Firm characteristics:

p
High debt to equity ratio Convertibles increase Firms issuing convertibles as ‘delayed
book value of equity/debt (21%, Table 3) equity’ have low correlation with firms issuing
convertibles to increase equity/debt ratio
(Corr. ¼ 0.02)
p p
Low or distressed equity value Stock undervalued (35%, Table 4) Firms issuing convertibles as alternative
to equity issue tend to have undervalued
stock (Corr. ¼ 0.42**)
Stock overvalued (38%, Table 4) Firms issuing convertibles as ‘delayed
equity’ are more likely to have overvalued
stock. (Corr. ¼ 0.54***)
Debt constraints Debt or other constraints (15%, Figure 4) Low correlation between firms issuing
convertibles as ‘delayed equity’ and firms
that cannot issue (Corr. ¼ 0.04)
369
Appendix 1. Continued
370

Debt constraints Debt or other constraints (15%, Figure 4) Low correlation between firms issuing
convertibles as ‘delayed equity’ and firms
that cannot issue (Corr. ¼ 0.04)
p
4. Call provision Trigger clause (65%, Figure 4)
p
Very important Flexibility provided by ‘call’ (28%, Table 5)

p
Ability to ‘call’ important (28%, Table 3) Firms citing ‘Delayed equity’ also tend
Conversion is not important (32%, Table 5) to consider call unimportant (Corr. ¼ 0.29)
5. Market reaction
p
Negative but less negative than an equity issue Market reaction negative (64%, Figure 3)
2. Constantinides and
Grundy (1989)
Overcomes asymmetric 1. Convertible issue combined with repurchase Use of funds primarily for refinancing and
information problem of stock capital budgeting (57%, Figure 2), none
for stock repurchase
Separating equilibrium 2. Firm characteristics
and efficient investments
-High debt to equity ratio after issue Increase book value of equity/debt
(21%, Table 3)
3. Call provision
p
-Not important Conversion is not important
(32%, Table 5)
Ability to ‘call’ important
(28%, Table 3)
3. Sequential-Financing
(Mayers, 1998)
p
Uncertainty about the 1. Solves future financing problem Financing uncertain future investments
value of future investment (18%, Table 3)
opportunities
p
Solves problems of Forcing the conversion when future Firms issuing convertibles to finance future
financing profitable investment opportunities arise (28%, Table 5) opportunities do not set their conversion
future investment options policy accordingly (Corr. ¼ 0.03)
Resolves incentive conflict regarding Few cite use of funds for future growth
over investment (free-cash-flow) opportunities (12%, Figure 2)
problem and reduces issuing costs
Assumes costly to issue securities
p p
2. Provides signal about firm’s growth opportunities Good signal about growth opportunities Firms issuing convertible to finance future
(55%, Table 3) opportunities tend to also use it as a signal
(Corr. ¼ 0.29)
p
3. Alternative to debt Alternative to debt issue (70%, Figure 2)
4. Firm characteristics:
p p
-High growth firms High growth firms (55% P/E > 14, Figure 2) High growth firms plan their conversion
policy to finance future growth opportunities

(Corr. ¼ 0.61**)
5. Call feature
p p
-Very important Ability to ‘call’ important (28%, Table 3) Flexibility of callability provision
important for financing uncertain future
investments (Corr. ¼ 0.30*)
Conversion is not important (32%, Table 5)
p
Flexibility provided by ‘call’ (28%, Table 5)
p
Trigger clause (65%, Figure 4) Firms issuing convertibles to finance
future opportunities may not necessarily
have a trigger clause (Corr. ¼ 0.07)
p
6. Equity value could be overvalued/undervalued High stock price (38%, Table 4)
Low stock price (35%, Table 4)
p
7. Economies on issue costs. Less expensive than debt (72%, Table 3) Firms considering convertibles as less
expensive tend to consider the call provision
important (Corr ¼ 0.56**) as well as
callability important (Corr. ¼ 0.39**)
II. Other factors

A. Theory and practice
of capital structure
p p
1. Theoretical models Asymmetric information framework Negative market reaction (64%, Figure 3) Firms perceive postive net benefits of
convertible issuance despite negative
Pecking-order theory
p p
Signaling theory Good signal about growth opportunities Firms that use convertibles as signal
(55%, Table 3) tend to have less negative stock price
reaction (Corr. ¼ 0.44*)
p
2. ‘Window of opportunity’ Market conditions influence issuance High stock market volatility (67%, Table 4)
decision (Table 4)
371
Appendix 1. Continued
372

p p
Low interest rate (53%, Table 4) Low interest rates and high stock
volatility provide good window of
opportunity (Corr. ¼ 0.42**)
p
Stock overvalued (38%, Table 4)
p
Stock undervalued (35%, Table 4)
3. Managerial beliefs

p
Less expensive Convertibles are less expensive than
debt (72%, Table 4)
p p
EPS dilution Convertibles avoid short-term equity Firms with overvalued stocks tend
dilution (48%, Table 3) to issue convertibles as ‘delayed equity’
p
Forcing the conversion would affect (Corr. ¼ 0.54***) and to avoid EPS dilution
EPS (32%, Table 5) (Corr. ¼ 0.24)
p
Frequent users tend to avoid short-term
equity dilution (Corr. ¼ 0.41**)
p
Book value of debt to equity ratio Convertibles increase book value of
equity to debt (21%, Table 3)
B. Demand and supply factors
p
1. Demand of convertibles Increased demand by institutional investors Institutional investors are major
(Noddings et al. (2001)) holders of bonds (86%, Figure 3)
p
Increased demand by hedge funds Hedge funds are major holders
of bonds (55%, Figure 3)
p
Increase in merger and acquisitions activity 23% convertibles issued for mergers
and acquisitions (Figure 2)
p p
2. Development of European Well organised Well organised and liquid Managers who consider convertibles as
convertible market market (33%, Table 4) less expensive are likely to value the well
(Noddings et al. (2001)) organised and liquid market. (Corr. ¼ 0.41**)
p
Participation by international investors Convertibles facilitate reaching
international investors (18%, Table 3)
p p
3. Appeal to different firms Design of convertibles can be adjusted to fit Large variation in motivations of Small firms highly value access to
the needs of different firms convertible issuance (Table 3) international investors (Corr ¼ 0.53***)
and less covenants (Corr. ¼ 0.56***);
large firms tend tend to have overvalued
stock (Corr. ¼ 0.35*) and are more
concerned about EPS dilution at
conversion (Corr. ¼ 0.36*)
p
Large variation in convertible features
such as call premium, maturity, etc. (Figure 4)
p p
Features of convertibles are the Firms perceive postive net benefits of
primary reason for issuance (Figure 2) convertible issuance despite negative
p p
Frequent users (96%, Figure 4) Frequent users tend to perceive net
benefits as significantly positive
(Corr. ¼ 0.53***)
p
4. Role of investment bankers Investment bankers help in designing and pricing Investment advisor helps in designing
(56%, Table 6), especially for smaller firms
p
Investment advisor advice about market
conditions (58%, Table 6) especially for small firms
p p
5. Country-specific factors France versus other countries French firms tend to state that convertibles French firms issue convertibles both as
are less expensive than debt compared to ‘delayed equity’ (Corr. ¼ 0.60***) and
other firms (Table 3) consider it less expensive (Corr. ¼ 0.50***),
and value well organized market for
convertible in their country (Corr. ¼ 0.39**).
373

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European Financial Management, Vol. 10, No.

Why Do European Firms Issue

# Blackwell Publishing Ltd, 2004

2.1. Theoretical models

2.2. Empirical evidence

# Blackwell Publishing Ltd, 2004

3. Methodology and sample characteristics

3.1. Survey design

3.2. Initial sample

# Blackwell Publishing Ltd, 2004

# Blackwell Publishing Ltd, 2004

Austria 73 0.1 1 0.4 1 0.3 73

Poland 354 0.4 1 0.4 1 0.3 354

# Blackwell Publishing Ltd, 2004

Austria 1 143 1,867 1,409 469

Sweden 8 4,262 6,782 8,897 51

3.3. Respondent firms

We first present a summary of managerial responses on all survey questions and

4.1. Summary of managerial responses

# Blackwell Publishing Ltd, 2004

A: Sales (millions euros) B: Assets (millions euros)

Fig. 1. Firm characteristics.

# Blackwell Publishing Ltd, 2004

# Blackwell Publishing Ltd, 2004

# Blackwell Publishing Ltd, 2004

# Blackwell Publishing Ltd, 2004

B: Factors that influenced selection of

Fig. 2. Alternatives for convertibles.

# Blackwell Publishing Ltd, 2004

# Blackwell Publishing Ltd, 2004

# Blackwell Publishing Ltd, 2004

# Blackwell Publishing Ltd, 2004

market conditions, legal

A: Market reaction to convertible issue B: Major holders of convertibles

# Blackwell Publishing Ltd, 2004

to the call premium would be

A: Issue Size (¤ million) B: Features of the last convertible issued

Fig. 4. Characteristics of convertibles offerings.

# Blackwell Publishing Ltd, 2004

4.2. Correlation analysis

Table 7 presents Spearman rank correlation coefficients of survey responses. Panels A

# Blackwell Publishing Ltd, 2004

# Blackwell Publishing Ltd, 2004

Avd. EPS 0.49***

# Blackwell Publishing Ltd, 2004

5. Summary and conclusions

# Blackwell Publishing Ltd, 2004

# Blackwell Publishing Ltd, 2004

# Blackwell Publishing Ltd, 2004

1. Rationale for convertible Issuance

Ability to ‘call’ important

# Blackwell Publishing Ltd, 2004

Financial distress costly 3. Firm characteristics:

Survey evidence (direct) Other survey evidence

# Blackwell Publishing Ltd, 2004

# Blackwell Publishing Ltd, 2004

II. Other factors

Survey evidence (direct) Other survey evidence

# Blackwell Publishing Ltd, 2004

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