Covenants in convertible bonds: Boon or boilerplate?

Dutordoir, Marie, Pappas, Kostas ORCID: 0000-0003-3012-0858, Xu, Alice Liang and Zeng, Cheng Colin (2023) Covenants in convertible bonds: Boon or boilerplate? Journal of Corporate Finance, 80. p. 102392.

Text CORFIN-D-22-00565 030123.docx - Author Accepted Manuscript Download (204kB)

Abstract

This paper examines the role of restrictive covenants in convertible bonds. After controlling for standard covenant intensity determinants, an average convertible bond offering has 3.21 fewer covenants than an average straight bond offering. While covenants negatively affect straight bond yields, there is no negative association between covenants and convertible bond yields. Moreover, contrary to straight bond covenants, convertible bond covenants are set largely independently of issuer characteristics. Overall, our findings suggest that the conversion option and certain covenants are substitutes for addressing debt-related financing costs. The few covenants included in convertibles represent irrelevant boilerplate clauses.

Item Type:	Article
Uncontrolled Keywords:	Convertible bonds, Straight bonds, Restrictive covenants, Agency costs, Yields
Divisions:	Faculty of Humanities and Social Sciences > School of Management
Depositing User:	Symplectic Admin
Date Deposited:	24 Feb 2023 11:17
Last Modified:	12 Apr 2023 10:17
DOI:	10.1016/j.jcorpfin.2023.102392
Related URLs:	Author Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3168570