Study On Financing Choice And Performance Of Convertible Bond Of China's Listed Companies

In recent years, as a hybrid type financing tool which has the characters of both stock and bond, convertible bond has been becoming one of the most import further financing tools for listed companies. This paper examines the financing-chosen strategy motives and performance of convertible bonds of listed companies by empirical study.In view of the highly concentrated ownership and stock split market environment, this paper analyze that the superior public companies have the motives to convertible bonds since the desire of the controlling stockholder to maximize the controlling benefits on the basis of Stein's model in 1992.This paper has chosen 33 listed companies which have issued convertible bonds between the year 2000 and 2004 as the sample. Using the Logistic regression method to testify the preference in convertible bond and seasoned equity offering(SEO) financing-chosen strategy, the empirical results show that lower financial leverage and bigger asset scale have a significant preference in convertible bond financing-chosen strategy. Meanwhile, it's also found that the majority convertible bonds in our country are equity-like by using probability analysis. Therefore we can unveil the real motives of convertible bond financing-chosen strategy --- realize indirect equity financing. The initial conversion probability of convertible bond has a significantly positive relation with the interest rate but a non-significant relation with company characters, which demonstrates that public companies tend to issue convertible bond with stock characters in the period of high interest rate. When the expected financial distress costs are high, listed companies maximize the financing scale by issuing convertible bonds with equity-like, and to obtain the controlling benefits as well. Furthermore, the convertible bond financing-chosen strategies of public companies are affected by financing supervision policies.After testifying the performance of listed companies by empirical study, we find that the performance of the companies who have issued convertible bonds present a reverse U-shape during the period three years before the issue and the second year afterward, which shows that the performance has been increasingly enhanced before issue and gradually decreased after it. The results are all the same no matter whether it is adjusted by Size/BM rate, EBIT counterpart, industry mean or medium. The empirical results show that there is also a tendency in convertible bond financing strategy to beautify companies'performance before issue and the performance decline after it. This kind of financing choice can not significantly improve a company's operation performance.Unlike the significantly negative effect of right issue and SEO to stock price, convertible bond financing have a positive effect on stock price. The Cumulative Abnormal Return(CAR) of convertible bond in 61 days announcement period is 1.53%. Compared with Size/BM counterpart and EBIT counterpart, the CAR of one year after the issue is relatively 17.13% and 13.52%.This paper shows that, in view of highly concentrated ownership and stock split background, when public companies find it is hard to maximum financing scale by equity financing, they will realize the benefits of control by issuing convertible bond as indirect equity financing. Convertible bond which can not improve company performance has become an alternative tool for controlling stockholders to expropriate un-controlling stockholders. The favorable change in stock market after issue of convertible bond is not result of the operation performance improvement of the company but may be the result of manipulation of stock market.