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The determinants of the convertible bonds call policy of Western European companies

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  • Adoukonou, Olivier
  • André, Florence
  • Viviani, Jean-Laurent

Abstract

This paper analyzes the determinants of the convertible bonds call delay of the Western European firms. This delay is analyzed comparatively to the optimal call policy suggested by Ingersoll (1977a) who argues that in a perfect market, managers should call the convertible bonds immediately when the conversion value reaches the call price. Like the previous studies in the US market, we find that the Western European companies delay the call of their convertible bonds for several weeks. This delay is explained by considering the main theoretical rationales for the convertible bonds call delays (the notice period, the call protection provisions, the cash flow advantage hypothesis, the financial distress and the signaling theory). The results are consistent with the cash flow advantage rationale but less evidence is found for the other theories.

Suggested Citation

  • Adoukonou, Olivier & André, Florence & Viviani, Jean-Laurent, 2021. "The determinants of the convertible bonds call policy of Western European companies," International Review of Financial Analysis, Elsevier, vol. 73(C).
    • Handle: RePEc:eee:finana:v:73:y:2021:i:c:s105752192030226x
    DOI: 10.1016/j.irfa.2020.101582
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    More about this item

    Keywords

    Callable convertible bonds; Call delay; Soft call; Hard call;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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