Are they still called late? The effect of notice period on calls of convertible bonds

When calling its convertible bonds, a company must typically give bondholders a notice period of about 30 days to decide whether to convert the bonds. This notice period affects the optimal call policy for convertible bonds. After accounting for the notice period, convertible bonds in our sample would have been optimally called when the stock was at about an 11% premium (median) relative to the conversion price. We show that after properly accounting for the call notice period and other factors, the median excess call premium is less than 40%-substantially less than the 26-44% call premium previous researchers have documented. (C) 2005 Elsevier B.V. All rights reserved.