Abstract
Our study provides evidence that security design reflects the interplay of supplier and issuer preferences. While call provisions have historically been the default option in convertible security design, we find that only a minority of post-2005 issues are callable. Because hedge funds dominate the market for new convertibles today and convertible arbitrage is less risky without callability, the diminution in callability emphasizes the importance of the preferences of the suppliers of capital in determining security design. We show that further determinants of callability include rationales for issuing convertibles that emphasize issuer preferences.
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