Competitive threats motivate firms to use convertible debt because the possibility of future conversion enhances financial flexibility. Consistent with this intuition, we find that the intensity of competitive threats is positively associated with convertible debt financing at both the extensive and intensive margins. By using large tariff reductions as exogenous shocks to competition we show that this relation is likely causal. Convertible debt usage in response to competitive threats strongly depends on a firm’s relative financial and competitive conditions. In addition, firms increase the probability of future conversion by tailoring convertible debt features. (JEL D34, G30, G32, G39)

We document the importance of political promotion incentives for supervisors in banking supervision. Utilizing the merger of the China Banking Regulatory Commission (CBRC) and the China Insurance Regulatory Commission (CIRC) in 2018, we explore the actions of head of the CBRC's regional offices. We find that the increased political promotion incentives are associated with higher frequency, greater amount, and greater severity of penalties in regional banking supervision. The enhanced supervision is more remarkable when the head of the CBRC's regional offices has a higher political rank. After the merger of the two commissions, the regional banking supervision is significantly weakened with the disappearance of political promotion incentives. Furthermore, these enhanced regional supervision triggered by the merger event reduce bank risk. Our findings show that the increased political promotion incentives affect the supervisor's activities and improve the supervision effectiveness.