Conversion privileges? The effect of convertible debt on strategic emphasis and firm performance

Convertible debt is one of the most important financial strategies. However, how convertible debt affects marketing decision-making remains unknown. Our study tends to answer two research questions: (1) How does convertible debt impact firm performance through strategic emphasis? (2) How does the impact of convertible debt on firm performance vary under market turbulence? Drawing on the agency theory, we found that convertible debt results in strategic emphasis shifting into exploitation activities, which ultimately has a negative influence on company performance. In addition, we also found that in a turbulent market, companies that issue convertible debt would invest more in exploitative activities than in a non-turbulent market, which would result in a more negative influence on firm performance. Our research contributes to convertible debt and strategic emphasis literature. For management teams, our research provides evidence that the marketing consequences of convertible debt need to be carefully considered in strategic decision-making.