Convertible bonds (CBs), which can be converted into a firm’s stock at a specified price during a given period, have become increasingly popular financing instruments. New issues can be consummated rapidly since they tend to be marketed via conference calls rather than road shows. Furthermore, the execution risk, from exposure to random price changes as a consequence of the time required to execute an order, is limited. CBs can also be flexible tools for balance sheet management since coupons and conversion prices can be tailored to the issuer’s needs. Additional features can also be included in convertible bond issues in order to meet issuer’s needs as well as investors’ needs. Ostensibly, the option features will permit the firm to enjoy lower interest costs relative to straight debt. However, accountants and rating agencies treat convertible bonds as debt.1 On the other hand, it is argued that convertible bonds are issued by firms with speculative-grade ratings that could not raise capital either by issuing equity or straight debt. The implication of this is that convertible bonds are likely to be issued by firms that are smaller and riskier.