Do Convertible Bond Issuers Cater to Investor Demand?

Abstract

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.

What is the role of institutional investors in corporate capital structure decisions? A survey analysis

“…Fan et al (2012) also find that preferences of capital suppliers play an important role in explaining firms' capital structure. Some studies document evidence of capital supply-driven convertible bond issuance (Loncarski et al, 2009;Choi et al, 2010;De Jong et al, 2013), and of a strong impact of investor preferences on convertible bond 7 These are possibly passive investors who manage index funds. In fact, some of the e-mails that we received from potential respondents mention they are passive investors.…”