The effect of firm characteristics on the choice among straight debt, convertible debt and equity issuance : evidence from Canada

Abstract

The purpose of this paper is to examine the effect of firm-specific characteristics on firms’ security issuance choice among straight debt, convertible debt and equity in Canada. Firms in this study are Canadian and listed on the Toronto Stock Exchange (TSE) that according to Bloomberg issued straight debt, convertible debt, or equity during the period from 2000 to 2012. A Logit model is used in the study. The results show that firm size is the most significant factor both for the choice between debt-type security and equity-type security, and straight debt and debt-like convertible debt. Smaller firms are more likely to issue equity-type securities. Leverage has a negative relationship with the issuance of equity type securities, while firms with higher stock return volatility are positively related to the issuance of equity-type securities. Firms with more tax liabilities are more likely to issue straight debt rather than debt-like convertible debt.