CAPITAL STRUCTURE MANAGEMENT AS A MOTIVATION FOR CALLING CONVERTIBLE DEBT

Douglas Emery, Mai E. Iskandar‐Datta, Jong‐Chul ‐C Rhim

Research output: Contribution to journalArticle

8 Citations (Scopus)

Abstract

Using a matched‐pairs methodology, we present empirical evidence of systematic changes within a corporation that are associated with calls of convertible debt. We find that calling firms experience significantly greater growth than noncalling firms in the same industry, as measured by retained earnings and long‐term debt. Also, the converted debt provides a significant source of new book equity, and calling firms issue significantly less other new equity. The pattern of growth in balance sheet accounts is consistent with the pecking order hypothesis and supports the notion that some firms call convertible debt to reduce their total cost of obtaining additional external financing. The evidence also shows that, on average, calling firms experience a significant decline in their leverage ratio based on book value but no significant change in their leverage ratio based on market value of equity. This is consistent with the call's being used as part of the firm's management of its capital structure.

Original languageEnglish (US)
Pages (from-to)91-104
Number of pages14
JournalJournal of Financial Research
Volume17
Issue number1
DOIs
StatePublished - Jan 1 1994
Externally publishedYes

Fingerprint

Capital structure
Convertible debt
Equity
Leverage ratio
Debt
Balance sheet
Retained earnings
Empirical evidence
Book value
Methodology
Costs
Market value
Industry
External financing

ASJC Scopus subject areas

  • Accounting
  • Finance

Cite this

CAPITAL STRUCTURE MANAGEMENT AS A MOTIVATION FOR CALLING CONVERTIBLE DEBT. / Emery, Douglas; Iskandar‐Datta, Mai E.; Rhim, Jong‐Chul ‐C.

In: Journal of Financial Research, Vol. 17, No. 1, 01.01.1994, p. 91-104.

Research output: Contribution to journalArticle

Emery, Douglas ; Iskandar‐Datta, Mai E. ; Rhim, Jong‐Chul ‐C. / CAPITAL STRUCTURE MANAGEMENT AS A MOTIVATION FOR CALLING CONVERTIBLE DEBT. In: Journal of Financial Research. 1994 ; Vol. 17, No. 1. pp. 91-104.
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