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Convertible Debt: Financing Decisions and Voluntary Conversion under Ambiguity
Author(s) -
Agliardi Elettra,
Agliardi Rossella,
Spanjers Willem
Publication year - 2015
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12057
Subject(s) - convertible bond , ambiguity , valuation (finance) , equity (law) , debt , convertible , equity value , valuation effects , business , economics , bond , financial economics , actuarial science , finance , internal debt , debt levels and flows , computer science , structural engineering , political science , law , programming language , engineering
This paper integrates ambiguity into a contingent claim model for convertible debt. We study how convertible debt valuation is affected by the ambiguity biases of equity holders and debt holders and provide sensitivity analysis of the bond value to changes in attitude toward ambiguity, firm and bond parameters. Our results, which are summarized into five main predictions, are consistent with recent empirical evidence and offer a possible interpretation of some corporate finance puzzles.