Abstract: This study investigates the mechanisms through which Chinese listed firms use convertible bonds as a tool for indirect equity financing. Using a comprehensive sample of publicly issued convertible bonds from 2006 to 2022, we adopt a full life-cycle perspective—from issuance to delisting—to examine how firms employ convertible bonds to achieve equity financing goals, particularly when traditional equity issuance channels, such as private placements, face regulatory or market constraints. We begin by identifying a significant substitution effect between convertible bond issuance and private equity placements. Following the regulatory tightening of private placements in 2017,the annual number of such issuances declined sharply,while convertible bond issuances surged in parallel. Conversely,when the regulatory environment eased in 2020,the trend reversed. This inverse relationship suggests that when private placements are restricted,firms tend to choose convertible bonds as an alternative financing instrument. To further test the hypothesis of convertible bonds being a tool for indirect equity financing,we evaluate the difficulty of conducting private placements by examining both market conditions and regulatory constraints. Empirical results indicate a significant negative correlation between the difficulty of private placements and the probability of convertible bond issuance,highlighting the conclusion that firms are more likely to issue convertible bonds when equity financing through private placements becomes less viable. To ensure the successful conversion of convertible bonds into equity,firms often engage in strategic behavior,notably earnings management. We observe a statistically significant increase in upward earnings management in the periods prior to convertible bond delisting,which pushes stock prices above the price threshold required to exercise call provisions. This earnings management behavior disappears following the delisting of the convertible bonds,suggesting that such behavior is primarily intended to facilitate conversion. Two contractual clauses are important in facilitating bond conversion: the downward adjustment clause and the call provision. When a firms stock price underperforms relative to the conversion price at a specific level,firms can exercise the downward adjustment clause to lower the conversion price,making conversion more attractive to bondholders and more likely to meet the call condition. Our analysis reveals that firms typically reduce conversion prices to just above the regulatory minimum—on average only 5% higher—suggesting that the clause is primarily used to promote conversion. The call provision allows firms to force conversion once specific market conditions are satisfied—most commonly when the stock price exceeds 130% of the conversion price for a designated number of trading days. Under such circumstances,firms can redeem the bonds at a relatively low price,prompting rational investors to convert bonds into equity shares to avoid financial loss. We find that 94% of convertible bond exits during the sample period were executed through call provisions,with an average conversion rate of 95%,emphasizing the effectiveness of this clause in achieving the equity financing goals. Interestingly,despite strong incentives to achieve conversion,we document a widespread phenomenon of delayed calls after the conditions for calling are met. The average delay is approximately three months,and in more than half the cases,calls were postponed by over one month. Although this may appear inconsistent with the indirect equity financing hypothesis,further analysis reveals that such delays are often driven by the selling motivations of controlling shareholders and institutional investors. Immediate calls can lead to a sharp decline in bond value,as the option value disappears,and stock prices typically fall after conversion. To avoid such losses,these large investors can influence the timing of the call,allowing them to sell their bond holdings before the bond is called. This behavior benefits large shareholders at the expense of retail investors,highlighting an important agency issue in the convertible bond market. Based on these findings,we propose three policy recommendations aimed at improving Chinas convertible bond market and its regulatory framework. First,the minimum conversion price should be raised,and the design of convertible bond terms should be refined. Although current regulations impose a lower limit on conversion prices,the presence of downward adjustment clauses gives firms too much flexibility to reduce them,undermining the hybrid nature of convertible bonds and turning them into simple equity issuance instruments. Second,earnings management practices related to convertible bond conversions should be more strictly monitored. Firms often manage earnings in the period prior to the bond delisting,misleading investors and distorting stock valuations. Third,regulatory oversight of call provision execution should be strengthened to protect retail investors. Under current rules,firms can freely determine the timing of calls,which can be exploited by controlling shareholders and institutional investors. Stricter and more transparent guidelines on call execution are necessary to reduce information asymmetry and ensure a fairer convertible bond market.