Footnotes 1 . This example is not meant to suggest that because the terms of the two convertible issues are nearly identical, the cost of the convertible is identical for the two companies Remember that convertible debt is a hybrid security, partly straight debt and partly (a call option on the company's) equity. The opportunity cost of a convertible debt issue should thus be thought of 215 a weighted average of the company's cost of debt and equity capital For the higher‐risk company in this example, the fact that it has both a higher cost of straight debt and a higher implicit cost of equity suggests that in convertible will have a higher implicit cost. But, more important, the fact that a much greater portion of the value of its convertible more important, the fact that a much greater portion of the value of its convertible been promised a more substantial equity stake in the higher‐risk company this, of course, translates into a higher opportunity cost of capital. 2 . This argument was first presented formally by Michael C. Jensen and William H. Meckling in “ Theory of the Firm Managerial Behavior, Agency Costs, and Capital Structure ,”
Journal of Applied Corporate Finance – Wiley
Published: Jun 1, 1988
It’s your single place to instantly
discover and read the research
that matters to you.
Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.
All for just $49/month
Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly
Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.
Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.
Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.
All the latest content is available, no embargo periods.
“Hi guys, I cannot tell you how much I love this resource. Incredible. I really believe you've hit the nail on the head with this site in regards to solving the research-purchase issue.”Daniel C.
“Whoa! It’s like Spotify but for academic articles.”@Phil_Robichaud
“I must say, @deepdyve is a fabulous solution to the independent researcher's problem of #access to #information.”@deepthiw
“My last article couldn't be possible without the platform @deepdyve that makes journal papers cheaper.”@JoseServera