Download Citation on ResearchGate | Convertible Bonds as Backdoor Equity Financing | Pigovian taxation of externalities has limited appeal if the tortfeaser. This paper argues that corporations may use convertible bonds as an indirect ( albeit . Backdoor equity financing hypothesis of Stein () receives universal . Thu, 08 Nov GMT convertible bonds as backdoor equity pdf -. Convertible financing. Jeremy C. Stein* bonds as backdoor equity. Massachusetts.

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In the interpretation backoor announcement effect, it is mainly based on convertible bond issue motive theory and then proper variables are selected and interpreted in the end.

In this way, convertibel conflict between shareholders conveftible creditors to a certain extent. Studies indicate that the issue of stock financial tools will have prominent negative effect on stock prices, while the issue of bond financial tools will have positive effect on stock prices [5]. Only in this way, can the studies be persuaded.

Mayers put forward continuous financing hypothesis on the basis of the uncertainty of future investment equity value [30]. Studies from abroad on convertible bonds has a long history and are relatively comprehensive which benefit from the mature capital market in developed capitalist countries [9].

Journal of Banking and Finance, 19, Studies from Abroad Studies from abroad on convertible bonds has a long history and are relatively comprehensive which benefit from the mature capital market in developed capitalist countries [9]. Studies cnvertible that control right profit, net assets of each share and each share free cash flow have significant positive relationship with convertible bond financing of listed company. Pei Zhenzhen makes a comparison about listed companies which issued convertible bonds and public further issue during January, and April, on the basis of theories and hypotheses abroad [34].

For those listed companies which plan further financing, the largest advantage compared with other ways of financing is its low cost. Journal of Finance, 42, Finance and Accounting Monthly, No. The Case of French Convertible Bonds. Kang and Stulz abnormal return rate of announcement effect is positive which is contrary to European and American countries [18].

A Summary of Literature: De Roon and Veld study stock market influence of convertible bond in Holland and find out that abnormal profit rate is 0. It can be seen that convertible bonds play the role of tax shield. Since the conversion period of convertible bonds in quite long and capital stocks bomds increase gradually, the profits of each share and net assets will be diluted step by step [4].

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bnods Please enable JavaScript to view the comments powered by Disqus. Journal of Financial Economics, 13, In the area of convertible bond financing announcement effect, scholars in British and American have the same research result, which argues that the issue of convertible bond has prominent positive effect on stock price; scholars in Japan and Holland draw the conclusion that convertible bond issue announcement has positive effect on company stock price.

When stock price of targeted company booms, external investors in security market will convert their shares, so cash will flow into the company and issue cost will be reduced. There are a lot of papers on empirical study of convertible bond issued announcement effect and studies indicate that in most part of the market, convertible bond announcement appears negative effect in price [11].

Convertible bonds as backdoor equity financing

Zhang Weidong believes that when listed company issues convertible bonds, market performance will not decrease notably because there is no exploitation that non-circulation shareholders impinge on circulation shareholders [23]. Conclusions Conclusions can be made on the basis of the analysis of literature review of scholars in various countries.

Zeng Kanglin takes 20 listed companies which can issue detachable trade and convertible bonds during May 8th, and December 31st, and chooses the issue day of instruction booklet as the event day [24].

Journal of Finance, 50, But studies on some emerging markets make it clear that the issue of convertible bond has positive effect [14]. Convertible bond is a financial derivative which develops on the basis of normal fianncing bond and differs in that convertible bond holders choose to convert their bonds into stocks of targeted company at a specific time and an agreed price [1].

Studies from Abroad In the aspect of the interpret of announcement effect, information asymmetry and financing theory are the two major theories. Journal of Finance, 61, Due to the right of choice, the interest of convertible bonds is lower than that of normal bonds [2].

A Summary of Literature: Convertible Bond Issue Announcement Effect

Research on Economics and Management, No. An Empirical Analysis for Chinese Market. Theoretical Basis about Convertible Bonds and Announcement Effect The short-term market performance of convertible bonds refers to the direction and degree of influence that convertible bond issued announcement has on the stock price of listed company, also called announcement effect.

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Journal of Financial Economics, 47, Her study shows that the most concerned factors when issuing convertible bonds include financial risk, development of company, adverse choice cost and relatively high equity concentration, while such factors as tax deduction effect are less considered. It is the right of choice that enables convertible bond a compound derivative with the characteristics of bonds and stocks which accredit the features of its various influences on market.

Therefore, the choice interpretation variable should combine with the actual situation in China.

EconPapers: Convertible bonds as backdoor equity financing

In the past, studies on finance performance of companies which have issued convertible bonds at home usually draw the conclusion that performance gets worse only on the basis of the data one year or two before or after the issue of convertible bonds.

As a consequence, market performance of convertible bonds is better than that of rationed shares and new equity. It is a process from investing money into a program to get return, so it is necessary to study the performance of the company from the issue day to the expiring date.

Convertible Bond Issue Announcement Effect. Bond announcement effect, also called shareholder asset effect, mainly checks the influence of the issue of bonds to the price of company stocks. Then, one of the motives of company to choose convertible bonds is to get lower external financing cost.

Liu Yancheng and Wang Qiwen study convertible bond samples of 21 companies and study indicates that there is no significant abnormal profit on neither the day after nor before the announcement day, with 0.

In western countries, due to mature stock market, scholars have a head start and have a relatively thorough study in convertible bond influencing factors. Journal of Financial Economics, 32, In the aspect of study of convertible bond issue motive, scholars from abroad have backdior researches and put forward various hypotheses and then verify them.

Friends of Accounting, No. We hope to be able to provide some inspiration for the development of the convertible bond market. Besides, convertible bonds exist longer abroad and issued quantities and convertiblw amount of money of convertible bonds are relative large.