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Product Market Competition and Convertible Debt Financing

Cheng Lei¹; Evgeny Lyandres^2,1; Chris Veld¹; Ying Xia¹

¹ Monash University · ² Tel Aviv University

Abstract 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)

DOI

10.1093/rcfs/cfae020

Volume

15 (1)

Pages

158-198

Language

en

Export

BibTeX

Sources

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