| Convertible bond, along with the gradual development of the convertibles market, had come to be a significant part of modern financial market. Being an innovative financing instrument that combines the characteristics of both equity and bond, and through the evolution of 150 years, convertible bond is now one of the prevailing financing approaches for listed firms all around the world.The convertible bond market of modern China emerged in early 1990s. After several years of stagnation, Regulations of Offering Convertible Bond and other three relevant official regulation papers were brought out in April 2001, indicating that convertible bond is officially recognized as an ordinary financing approach. Since then, China convertible bond market was on the rail of rapid development and expansion. In recent years, issuing convertible bond was the dominant approach when China listed firms considered refinancing.Through empirical research, the author argues that, after considering the effects such as risk-return features and the cost of financing, China convertible bond market has similar characteristics with mature market, and is reasonably in accord with the classic theories of financial market and instruments. Due to the prevalent favorable clauses embedded, as well as low correlation with other financial instruments, China convertible bonds provide superior value to enhance portfolio efficiency.Nevertheless, the inherent separation of equity of shareholders results in some serious market anomaly. Consequently, issuing convertible bond is still deemed as equity financing in China capital market. At times conflicts of interest is induced and the interest of shareholders of circulating shares is damaged in many cases. The author hereby suggests that, the regulatory authorities should support the shareholders of circulating shares to have more purchasing priority when the firm issuing convertible bond, and eventually promote the establishment of separation vote system as soon as possible.
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