Why Do Non-Investment Grade Rated Companies Issue Convertible Bonds Instead of Bonds in Norway?
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I find non-investment graded companies motives for issuing convertible bonds in the Norwegian market by evaluating logistic regression results from a two-step security choice model from samples of 28 convertible bond-, 102 bond- and 229 equity issuances from 2005 to 2011. The findings indicate that companies in the Norwegian market substitute convertibles for bonds if they have valuable investment opportunities at hand and are associated with risk and uncertainty. This paper argues that the issuers of convertible bonds substitute convertibles for bonds to mitigate the asset substitution problem and mitigate debt-related financing costs under the asymmetric information theory. I further deduce that convertibles are used as a debt-instrument in the Norwegian market, different from the US market and more similar to the Western European market. Finding the issuers motives for issuing convertibles in Norway extend current academic research, and can be a fundament for investors when evaluating different convertible bond investment opportunities.