This thesis examines the decision of European firms to issue convertible bonds, theirsubsequent corporate call policy, and whether this differs from the theoretical optimal call policy. The analysis was divided into two parts: Part I focused on the decision to issue a convertible bond and found that the European convertible bond market has a size of 154 billion USD, making up 22% of the global market, and that convertible bond issuance is higher in high-growth industries. At the same time, issuance should theoretically be higher when interest rate levels are low and volatility high, but this relationship is does not hold perfectly in the sample, suggesting that other socio-economic and political factors also have an impact on issuance. In addition, Western European countries dominate the European convertible bond market, despite creditor and shareholder rights being determined not to influence the decision to issue but instead the design of the convertible bond. With this, part II of the analysis, concerned with firms’ call policies and potential deviations from theoretical optimums, arrived at the conclusion that European firms do deviate from the theoretical optimal call policy of calling as soon as the convertible bond is in-the-money. A mean (median) call delay of 200.73 (89) days and premium of 97% (43%) were identified for the called convertibles. When adjusting this for call protection, the delay decreases to a mean (median) of 89 (46) days, while the premium decreases to 76% (19%). The call delay is longer and the premium lower for the non-called convertible bonds as compared to the ones called during the sample period. Lastly, part II of the analysis identified a trend where the convertible bonds in the sample with hard call provisions are called less, suggesting that investor and issuer’ preferences can be embedded in the convertible bond design and subsequent call policies. These results are similar to ones identified by scholars researching the US market, implying that the two markets have similar call policies, and that research is thus comparable to a certain degree across the markets.
