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Convertibles in Sequential Financing

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  • Susheng Wang

Abstract

Sequential financing is a popular strategy in corporate finance. However, depending on the type of financial instrument used to carry out the strategy, sequential financing can have many potential problems. This paper shows that certain types of convertibles can be deployed to resolve the problems completely. This may explain why convertibles are widely adopted to implement sequential financing in reality, especially among companies with many real options. We find that the call feature and some popular call restrictions are necessary for an efficient convertible. Indeed, almost all real-world convertibles have a call feature and call restrictions. Copyright 2009, Oxford University Press.

Suggested Citation

  • Susheng Wang, 2009. "Convertibles in Sequential Financing," Review of Finance, European Finance Association, vol. 13(4), pages 727-760.
    • Handle: RePEc:oup:revfin:v:13:y:2009:i:4:p:727-760
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    File URL: http://hdl.handle.net/10.1093/rof/rfn024
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    Cited by:

    1. Wang Susheng, 2010. "Contractual Incompleteness for External Risks," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-36, April.
    2. Burlacu, Radu & Jimenez-Garcès, Sonia, 2022. "Why do firms issue callable convertible bonds? A critique of the “backdoor equity financing” theory," Journal of Banking & Finance, Elsevier, vol. 144(C).
    3. Dutordoir, Marie & Lewis, Craig & Seward, James & Veld, Chris, 2014. "What we do and do not know about convertible bond financing," Journal of Corporate Finance, Elsevier, vol. 24(C), pages 3-20.
    4. Wang, Lanfang & Wang, Susheng, 2012. "Endogenous networks in investment syndication," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 640-663.

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