Convertible bonds with resettable conversion prices

doi:10.1016/j.econmod.2012.11.058

2013-03-01

PRE

Qin, Junfeng

张永力 (Zhang Yong-li) *

DOI：10.1016/j.econmod.2012.11.058

原文链接

原文求助

摘要

En 中文

We examine the convertible bonds whose conversion prices can be reset under certain conditions, by extending the asymmetric information framework of Stein (1992). These convertibles are more common in Japan and China and are in sharp contrast with the convertible bonds with fixed conversion prices. We find that resettable convertibles can help firms reduce liquidity cost. But the adverse selection problem caused by bad firms may be exacerbated if the cost of financial distress is not sufficiently high. Firms can mitigate the problem through costly signaling with fixed-price convertibles. Finally, we show that pooling and separating equilibria may coexist for some parameter values. (C) 2012 Elsevier B.V. All rights reserved.

Keyword:

Convertible bonds

Resettable conversion prices

Corporate financing

Adverse selection

Asymmetric information