Convertible securities in merger transactions

► We provide a rationale for the use of convertibles as the means of payment in M&As. ► Convertibles resolve information asymmetry on both the bidder and the target sides. ► Convertibles are used when the bidder and the target information asymmetry are high. ► Convertible deals have positive announcement returns for both bidders and targets. ► Convertible deals have higher bidder and lower target returns than cash/stock deals.