Convertible bond maturity and debt overhang
Gan, Liu and Xia, Xin and Xu, Wenyang and Zhang, Hai (2024) Convertible bond maturity and debt overhang. International Review of Financial Analysis, 95 (Pt. B). 103410. ISSN 1057-5219 (https://doi.org/10.1016/j.irfa.2024.103410)
Text.
Filename: Gan-etal-IRFA-2024-Convertible-bond-maturity-and-debt-overhang.pdf
Accepted Author Manuscript Restricted to Repository staff only until 29 December 2025. License: Download (989kB) | Request a copy |
Abstract
We develop a dynamic corporate investment model to investigate the determinants of the optimal maturity structure of convertible bonds and its debt overhang effect. Our model predicts that relative to the issuance of straight bonds, companies opting for short-term (long-term) convertible bonds tend to expedite (delay) their investment activities, thereby alleviating (exacerbating) issues related to underinvestment. This outcome provides a theoretical rationale for the observed trend of decreasing convertible bond maturity, as explained by debt overhang theory. Moreover, contrary to previous findings, a growth company optimally chooses to issue convertibles with shorter maturities when it has fewer valuable growth opportunities. These insights improve our understanding of the interactions between convertible bond maturity and corporate investment.
ORCID iDs
Gan, Liu, Xia, Xin, Xu, Wenyang and Zhang, Hai ORCID: https://orcid.org/0000-0001-9319-346X;-
-
Item type: Article ID code: 89884 Dates: DateEvent1 October 2024Published29 June 2024Published Online19 February 2024Accepted2 February 2023SubmittedSubjects: Social Sciences > Finance Department: Strathclyde Business School > Accounting and Finance Depositing user: Pure Administrator Date deposited: 09 Jul 2024 14:55 Last modified: 01 Oct 2024 09:53 URI: https://strathprints.strath.ac.uk/id/eprint/89884