What question did this study set out to answer?

The aim is to evaluate the value components of convertible bonds and their effects on financial metrics like dilution and leverage.

The Effect of Convertible Bond Equity Values on Dilution and Leverage.

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Analysis reveals how convertible bond values impact dilution and leverage metrics in finance.

The aim is to evaluate the value components of convertible bonds and their effects on financial metrics like dilution and leverage.
Utilized a contingent claims valuation model to estimate values of convertible bonds.
Compared model estimates with market values of the bonds to assess accuracy.
Examined average equity values as a percentage of book and market values.
Restated leverage and dilution measures by excluding equity values from debt.
Model estimates were approximately unbiased relative to market values, with 90% within 10%.
Average equity values of convertible bonds represent 16.7% and 18.4% of book and market values, respectively.
Differences in leverage and dilution measures were generally small but significant for some firms.
Model EPS was closer to primary EPS compared to fully diluted EPS, indicating a variance in earnings reporting.

Raymond D. King (1984) studied this question.

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