How do convertible bonds benefit companies in terms of liability management?

Convertible bonds are advantageous for companies in liability management primarily because they provide an option to convert debt into equity. This conversion feature allows companies to reduce their leverage and improve their balance sheets over time. By offering investors the ability to convert the bond into shares of stock, companies can attract more investment, as this feature presents potential upside for bondholders if the company's stock performs well.

Furthermore, if the bonds are converted into equity, the company can eliminate its debt obligations associated with those bonds, leading to lower interest payments and improved financial flexibility. This is particularly beneficial for companies that might be experiencing cash flow constraints or are aiming to strengthen their equity base without immediately diluting existing shareholders, as the conversion typically happens at a predetermined ratio and price.

The other options, while technically possible scenarios associated with finance and operations, do not directly relate to the specific benefits that convertible bonds provide in the context of liability management. For instance, increasing interest rates does not benefit companies; rather, it adds further cost to their debt obligations. Immediate cash influx is not guaranteed, as the cash flow from convertible bonds is reliant on investor interest and market conditions. Reducing operational costs is a separate issue that does not directly link to the structure or advantages of convertible bonds.