Abstract

The study investigates the relationship between firm specific characteristics and choices between straight debt
and convertible debt issuances by Malaysian listed companies. The unique irredeemable feature of most
convertible debts issued in Malaysia and the fast growth of the Malaysian bond market following the Asian
economic crisis render this study to be conducted. Seven firm characteristics variables were selected based on
previous literature namely tax consideration, debt ratio, tangibility, firm size, growth opportunities, profitability,
and net operating cash flow. The result concludes that relatively smaller companies with lower debt tax shield,
higher debt ratio, lower profitability and lower growth opportunity are more likely to issue convertible debt. The
findings are consistent with the trade-offs theory where tax consideration and bankruptcy are given due attention
in financing decision but does not provide support for the ‘risk shifting hypothesis’ and ‘backdoor listing
hypothesis’.

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