Underwriting and calls of convertible bonds

We model convertible bond calls under asymmetric information where, unlike Harris and Raviv, we consider a nonzero call price and a call notice period. In the model, the use of underwriters conveys negative information. Consequently, the stock price decline is greater for underwritten calls than for nonunderwritten calls. Furthermore, underwritten calls are made earlier and when the conversion option is less deep in the money. Underwriting commissions and the stock price decline associated with a call are negatively related to the extent that the conversion option is in the money before the call. Empirical evidence in this paper and Singh, Cowan, and Nayar are consistent with the model's predictions.