CEO inside debt and convertible bonds

Wei Hsien Li, S. Ghon Rhee, Carl Hsin han Shen

Research output: Contribution to journalArticlepeer-review

12 Scopus citations


The question whether convertible bonds are issued to combat the risk-shifting problem is a subject of debate in the literature, primarily because of the unavailability of clear measures regarding managerial risk-shifting incentives. Taking advantage of recently developed inside debt-holding measures for CEOs, we find strong evidence in support of the risk-shifting hypothesis. When a CEO holds a large amount of inside debt, three distinct patterns emerge: (i) the firm exhibits a lower ratio of outstanding convertibles to total debt; (ii) the firm is less likely to issue convertibles than straight debt; and (iii) the firm devises contract terms to decrease the chance of conversion when it issues convertibles.

Original languageEnglish
Pages (from-to)232-249
Number of pages18
JournalJournal of Business Finance and Accounting
Issue number1-2
StatePublished - 1 Jan 2018


  • convertible bond
  • inside debt
  • risk shifting


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