Do Convertible Bond Issuers Cater to Investor Demand?


  • Abe de Jong,

  • Eric Duca,

  • Marie Dutordoir

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    • Abe de Jong is a Professor at the Rotterdam School of Management, Erasmus University, Rotterdam and a Professor at University of Groningen in the Netherlands. Eric Duca is an Assistant Professor at Colegio Universitario de Estudios Financieros (CUNEF), in Madrid, Spain. Marie Dutordoir is a Lecturer at the Manchester Business School in Manchester, United Kingdom.

  • We thank Ettore Croci, Nico Dewaelheyns, John Doukas, Mara Faccio, Mila Getmansky, Bruce Grundy, Mathieu Luypaert, Elvira Sojli, Mathijs van Dijk, Chris Veld, two anonymous reviewers, and participants at the 2009 European Financial Management Association Meeting in Milan, the 2009 BAA Scottish Area Group Conference in Stirling, the 2009 Corporate Finance Day in Antwerp, the 2009 Australasian Finance and Banking Conference in Sydney, the 2010 FMA Conference in New York, and at seminars at Catholic University of Louvain, University of Groningen, and Maastricht University for valuable comments. Eric Duca gratefully acknowledges Trustfonds for providing financial support.


We examine the impact of fluctuations in investor demand for convertible securities on convertible bond issue volumes, pricing, and design. We find evidence of a positive impact of investor demand proxies on convertible bond issue volumes. We also document significantly lower convertible bond underpricing in periods with higher investor demand. The results hold in a variety of specifications, and are robust to controlling for firm-specific and macroeconomic financing cost proxies. However, we obtain only limited evidence that issuers adjust the design of their convertible bond offerings in response to investor demand.