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We survey institutional investors on the convertible bond issuance decision. Investors believe that convertibles are preferred over equity in order to avoid equity dilution. We also find support for traditional convertible bond issuing theories, such as the backdoor equity, sequential financing, risk shifting, and risk disagreement models. Investors attribute little importance to factors that make convertible bonds more attractive for hedge funds such as volatility and dividend payments on the underlying stocks. This latter result is likely related to the smaller role that convertible arbitrage activity started to play in this market. |
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