Does corporate governance influence convertible bond issuance? |
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| Institution: | 1. Department of Mathematics, Zhejiang University, 38 Zheda Road, Hangzhou 310027, China;2. College of Economics and Academy of Financial Research, Zhejiang University, 38 Zheda Road, Hangzhou 310027, China;1. School of Business Administration, Oakland University, 2200 North Squirrel Road, Rochester, MI 48309-4401, USA;2. School of Management, The University of Michigan-Flint, 303 E. Kearsley Street, Flint, MI 48502, USA;3. School of Business, Ithaca College, 953 Danby Road, Ithaca, NY 14850, USA;1. Deutsche Bundesbank, Frankfurt, Germany;2. University of Amsterdam and CEPR, Amsterdam, Netherlands |
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| Abstract: | We examine the influence of corporate governance quality on firms' choice between convertible debt, straight debt, and equity using a Western European sample of security offerings made between 2000 and 2010. We find that weaker firm-specific and country-specific corporate governance quality increases firms' likelihood of issuing convertible debt instead of straight debt and common equity. We also find that stockholder reactions to convertible debt announcements are more favorable for firms with weaker corporate governance. Our results suggest that corporate governance quality is a significant security choice determinant, with firms using convertible debt as a substitute for high quality governance mechanisms. |
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