経営者のエントレンチメントと転換社債・ワラント債の発行

In this paper, we explain why firms issue convertible bonds and warrant bonds based on the managerial entrenchment approach. The entrenchment approach is based on the observation that an entrenched manager has discretion on the firm's financial policy. This approach appears to be appropriate for large listed firms where shareholders are sufficiently diversified. We consider a situation in which an entrenched manager is exposed to the threat of hostile takeover and bankruptcy. Debt creation, without retention of the proceeds of the issue, enables the manager to commit not to undertake a value-decreasing project in the future, because it will lead the firm into bankruptcy with large probability. This credible commitment raises the firm's stock price and a hostile takeover can be avoided. However, there remains a positive probability of bankruptcy, because the manager's empire-building tendency makes her undertake a value-increasing project. The project will lead the firm into bankruptcy with small probability. By issuing well-designed warrant bonds, an entrenched manager can remove the possibility of takeover and bankruptcy completely. Warrant must be designed so that it will not be exercised after a value-decreasing project is undertaken and will be exercised following a value-increasing project. The former ensures that the manager never undertakes a value-decreasing project because net debt will remain. The latter ensures that bankruptcy never occurs after undertaking a value-increasing project, because additional cash paid into the firm (to exercise the right) decreases the firm's net debt level. The market prediction that the firm will undertake only a value-increasing project raises the firm's stock price and a hostile takeover can be avoided. Thus, an entrenched manager prefers warrant bonds to straight bonds. Convertible bonds play the same role as warrant bonds in the model.