Announcement Effects Of Convertible Bonds Issues: An Empirical Analysis For The China Market

Convertible bonds are the bonds that are issued according to legal procedure and can convert into equity of corporate under specific conditions in a period. Though coming into being not for a long time, convertible bond grow very rapidly and become an inneglective means of outer financing. Compared to lots of foreign theoretical papers and empirical researches, the study about the effect of convertible issuing on stock price is still lack. This paper study announcement effect of convertibles issuing by China listed companies based on western corporate finance and econometrics theories, and analyze the factors that affect the announcement effect by a cross-section regress ional model. What's more, to study the mechanism how convertible financing determinates firm value; the author compares the research result with abroad outcomes.The content of this paper is as follow:Chapter I gives a synthesis of relative theoretical models and empirical results. First of all, this paper reviews the theories of capital structure; secondly, this paper emphatically introduces several important papers; thirdly, this paper compared the empirical result of different countries.Chapter II provides some background materials of following research. This chapter is divided into two parts: the first two sections introduce the developing history and characters of Chinese convertible market; the last section introduces some papers about announcement effect researching in Chinese stock market from which we can draw some specialties.Chapter III is empirical study. This paper choose 24 samples that Chinese listed companies issue convertibles on native market from total samples and give an descriptive statistic about their characters, such as the time distribution. Then the author introduces the event-study method and study announcement effect of Chinese convertible issuing. The paper point out that the announcement effect is positive, but (-1, 0) and (0, +1) cumulative abnormal return is not significant. Only abnormalreturn of day +1 is significant in 10% significant level.Chapter IV try to tell the possible factors that affect the announcement effect. The author colligate independent variables of two models from Frans de R. and Chris V. (1998) and Abhay A. and Alison D. (1999) and build a congressional model of my own which through the statistical check. The announcement effect of convertible issuing by Chinese listed companies is positively relative to debt/asset ratio of the companies, convertible issue amount and price premium, negatively relative to total asset of the companies and convertible's maturity. To our surprise, no strong proof is found about the relation of the difference of governance mechanism and abnormal return.Chapter V is conclusion. Except for the empirical result, more importantly, the author give some explains for tax-shield theory, signal effect theory and moral hazard theory. The author think the tax-shield effect and good signal effect can almost explain Chinese condition, but author also point out convertibles are unable to solve the moral hazard problem, reduce the agent cost between owners and managers and promote the efficiency. At last, the author gives some short point of this paper and shows some directions of future research.