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Chief executive officer participation in their firm’s convertible note offerings
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Spencer N. Palmer 
This work is licensed under a Creative Commons Attribution 4.0 International License.
Abstract
Directors, shareholders, and regulators want to understand the costs and benefits of financial arrangements between the firm and its chief executive officer (CEO). This paper examines why some CEOs participate in their firm’s convertible note offerings and the relationship between CEO participation and their firm’s lending outcomes. The author combines data collected directly from U.S. Securities and Exchange Commission (SEC) Form 4 and other filings, Capital IQ, and Compustat for 163 firms from 2003–2020. Firms frequently claim that their CEO participates in convertible note offerings to reduce the firm’s cost of debt. The author tests these claims using ordinary least squares (OLS) regression analysis and finds that note offerings have a lower interest rate and shorter time to maturity when the CEO participates. These results are consistent with the firms’ claims; however, the results may only apply to small, financially constrained firms. Additional tests of abnormal returns around CEO participation suggest investors respond positively to CEO participation. This study contributes to the literature by providing novel evidence of an understudied form of CEO wealth and documenting the relationship between CEO participation and less costly debt.
Keywords: Executive Compensation, Corporate Governance, Inside Debt, Debt Contracting, Convertible Debt
Authors’ individual contribution: The Author is responsible for all the contributions to the paper according to CRediT (Contributor Roles Taxonomy) standards.
Declaration of conflicting interests: The Author declares that there is no conflict of interest.
JEL Classification: G34, J33, M12
Received: 17.10.2024
Accepted: 07.02.2025
Published online: 11.02.2025
How to cite this paper: Palmer, S. N. (2025). Chief executive officer participation in their firm’s convertible note offerings. Corporate Ownership & Control, 22(1), 36–56. https://doi.org/10.22495/cocv22i1art3
