What happens to a company’s outstanding common stock when convertible bonds are converted by bondholders?

When convertible bonds are converted by bondholders, they are exchanged for shares of the company's common stock. This conversion directly increases the number of outstanding shares since new shares are created and issued to the bondholders in return for their bonds. As a result, the total number of common shares available in the market rises. This process typically dilutes the ownership percentage of existing shareholders because there are now more shares outstanding, meaning that each existing shareholder owns a smaller fraction of the company than they did before the conversion. This dynamic is particularly important for investors to understand, as it can affect voting power and earnings per share metrics for the company.