| Summary: | 碩士 === 國立中央大學 === 財務金融研究所 === 98 === In this article, we examine the convertible issues in U.S. market from January 1990 to December 2007, to investigate the conversion probability of issues with different G-index, which is a widely-used index for evaluating a firm’s equity holders’ right as well as corporate governance. In contrast to prior researches, we try to understand how a firm’s corporate governance affects convertible bondholders’ converting behavior. First, we hypothesize that for firms with better corporate governance, convertible bondholders are more willing to become shareholders by exercising the option to convert the debt into equity, and the convertible bond is therefore more equity-like. In the second hypothesis, we expect that the percentage of non-manager institutional shareholdings would strengthen the association between expected conversion probability and corporate governance. The empirical results show that higher G-index which implies stronger managerial control significantly lead to lower expected conversion probability. Besides, the ownership structure also affects the association. In robustness check, we alternatively define expected time to conversion. Similarly, for firms with better corporate governance, the convertible bondholders would convert debt into equity shortly. As a whole, the expected time to conversion is negatively related to the expected conversion probability at the maturity. Therefore, the convertible bondholders will take the level of managerial control into consideration to exercise their conversion option.
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