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Devising a non-standard convertible zero-coupon bond to enhance corporate governance

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  • Rodolfo Apreda

Abstract

This research paper brings forward a non-standard convertible zero-coupon bond endowed with a set of distinctive features attached to it so as to strengthen the corporate governance of the issuer, namely that conversion actually takes place at maturity date only; that conversion is mandatory; it offers investors a pay-off function tailored to match the conversion; there is no call provision whatsoever; it is suitable for private or public placements; credit-risk rating is of the essence and, lastly, it requires from the company a track record statement on behalf of investors. Although this sort of bond actually provides the company with a powerful financing vehicle, we argue that it could also play a constructive role if it were used in compensation packages for rewarding both senior managers and the Board of Directors.

Suggested Citation

  • Rodolfo Apreda, 2010. "Devising a non-standard convertible zero-coupon bond to enhance corporate governance," CEMA Working Papers: Serie Documentos de Trabajo. 421, Universidad del CEMA.
    • Handle: RePEc:cem:doctra:421
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    File URL: https://www.ucema.edu.ar/publicaciones/download/documentos/421.pdf
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    References listed on IDEAS

    as
    1. Rodolfo Apreda, 2002. "How corporate governance and globalization can run afoul of the law and good practices in business: The Enron's disgraceful affair," CEMA Working Papers: Serie Documentos de Trabajo. 225, Universidad del CEMA.
    2. Narayanan, M. P. & Lim, Suk-Pil, 1989. "On the Call Provision in Corporate Zero-Coupon Bonds," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(1), pages 91-103, March.
    3. Dybvig, Philip H & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1996. "Long Forward and Zero-Coupon Rates Can Never Fall," The Journal of Business, University of Chicago Press, vol. 69(1), pages 1-25, January.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    zero-coupon bond; convertible bond; corporate governance; covenants; compensation packages; track record statement;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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