Convertible Bonds Are Not Called Late



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    • MIT Sloan School of Management. I wish to thank Benjamin Bisconti, Charles Drakos, Paul Healy, Milton Harris, Deborah Lucas, Stewart Myers, the referee for this journal, Eduardo Schwartz, Paul Sequin, Andrei Shleifer, René Stulz, and especially Andrew Alford and Anne Beatty for helpful discussions and comments. In addition, I wish to thank the participants of the finance workshops at Harvard, Indiana, Notre Dame, and MIT. Finally, I wish to thank Jean Ihm and Matthew Zames for their research assistance. Financial support was provided by MIT's International Financial Services Research Center and the Judy C. Lewent Fund for Research in Finance.


Starting with Ingersoll (1977b), the academic literature has repeatedly sought to explain why convertible bonds are called late. The findings here demonstrate there is no call delay to explain. This paper finds that most convertible bonds, given their call protection, are called as soon as possible. For those that are not, there are significant cash flow advantages to delaying. The median call delay for all convertible bonds is less than four months. If a safety premium is desired to assure the conversion value will exceed the call price at the end of call notice period, the median call period is less than a month.