Shades of Grey: Corporate Financing with Convertible Bonds

Innovative financial instruments are used increasingly by firms to meet corporate capital requirements. We focus on one such instrument Convertible Bonds which combine the features of both debt and equity. We review literature on motives for corporate issuance of convertible bonds, post issue performance, extinguishment and financial reporting. We find that though issuance motives and post issue performance are well researched areas; the evidence is not conclusive. Adoption of IFRS and the impact thereof on key financial indicators of issuing firms will help firms design appropriate features in future. Studies covering entire lifecycle of the convertible bond and explaining different reasons for extinguishment of bonds are rather scant. We also find that there is greater scope of research on these topics in the context of emerging markets. We conclude with suggestions for other research topics that may be addressed in future.