Convertible Debt: Financing Decisions and Voluntary Conversion under Ambiguity

Elettra Agliardi · Rossella Agliardi · Willem Spanjers

12 citations0/0 files storedInternational Review of Finance

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Corporate Finance and Governance Stochastic processes and financial applications Capital Investment and Risk Analysis

Abstract

Abstract This paper integrates ambiguity into a contingent claim model for convertible debt. We study how convertible debt valuation is affected by the ambiguity biases of equity holders and debt holders and provide sensitivity analysis of the bond value to changes in attitude toward ambiguity, firm and bond parameters. Our results, which are summarized into five main predictions, are consistent with recent empirical evidence and offer a possible interpretation of some corporate finance puzzles.

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References

1984Corporate financing and investment decisions when firms have information that investors do not have 1984Investment incentives, debt, and warrants 2008Managerial Traits and Capital Structure Decisions 1977A contingent-claims valuation of convertible securities 1977CONVERTIBLE BONDS: VALUATION AND OPTIMAL STRATEGIES FOR CALL AND CONVERSION 2010Ambiguity and Asset Markets 1989Optimal Investment with Stock Repurchase and Financing as Signals 1988THE CASE FOR CONVERTIBLES*

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