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Why Do Western European Firms Issue Convertibles Instead of Straight Debt or Equity?


  • Part of this research was conducted while Marie Dutordoir was a visiting scholar at Columbia Business School, Columbia University, New York. We thank an anonymous referee, Abe de Jong, Laurie Hodrick, Nancy Huyghebaert, and Piet Sercu for detailed suggestions. We also thank workshop participants at Columbia University, Erasmus Universiteit Rotterdam, Katholieke Universiteit Leuven, the 2004 EFMA meeting, the 2004 Belgian Financial Research Forum, and the 2004 Corporate Finance Day Ghent for insightful comments. Correspondence: Linda Van de Gucht.

  • [Correction added after online publication 15 May 2009: Affiliation of author Marie Dutordoir amended.[


Unlike their US counterparts, European convertible debt issuers tend to be large companies with small debt- and equity-related financing costs. Therefore, it is puzzling why these firms issue convertibles instead of standard financing instruments. This paper examines European convertible debt issuer motivations by estimating a security choice model that incorporates convertibles, straight debt, and equity. We find that European convertibles are used as sweetened debt, not as delayed equity. This motivation is reflected in the debt-like design of most European convertible issues.