Empirical Study On The Role Of Convertible Bonds Financing's Corporate Governance

Convertible bonds is a cross switching financing instruments between debt and equity securities. This paper analyses the underlying mechanism theoretically that convertible bonds can reduce the agency cost and improve the corporate governance performance of its target company based on existing domestic and international research and theory, combining with the typical characteristics of convertible bonds (equity-like, debt-like, containing option, call back, sell back) .This paper mainly does the empirical research on the role of convertible bonds that reduces the agency cost and improves the corporate governance performance of the target company based on the theoretical analysis. Firstly, this paper selects 48 issued convertible bonds in China's Shanghai and Shenzhen stock from January 1, 2002 to December 31, 2007 as a sample to do the empirical research on the role of convertible bonds that reduces the agency cost of the target company .The results show that the cost of the target company reduced after convertible bonds issued if using the rate of the total asset turnover and the management expense ratio to measure the agency cost. Then this paper shared the total sample groups to the equity-like group and the debt-like group to further study, results show that the equity-like group and debt-like group have the different ways to reduce the agency cost, the equity-like group reduces the agency cost mainly by reducing the management expense ratio and remaining the rate of the total asset turnover relatively stable ,while the debt-like group reduces the agency cost mainly by reducing the rate of the total asset turnover and remaining the management expense ratio relatively stable, and the debt-like group is more effective than the equity-like group to reduce the agency cost . So is it the motives of the listed companies of china to issue convertible bonds? This paper then does the empirical research on the motives of China's listed companies to issue convertible bond, results show that reducing the agency cost is one of the main motives of China's listed companies to issue convertible bonds.Secondly, this paper selects 48 issued convertible bonds in China's Shanghai and Shenzhen stock from January 1, 2002 to December 31, 2007 and the industry group as the sample to do the empirical research on the effects of convertible bonds that improves the corporate governance performance of the target company. Results show that convertible bond issued in china can improve the corporate governance performance of the target company, but the effect is not very effective. Then this paper does the vertical and horizontal empirical test to look for the reason finding that the profitability of the company's underlying assets appeared to decline sharply after the issuance of convertible bonds compared with the pre-release and also appeared to decline sharply compared with the industry group. In the last, this paper conducts a regression analysis to analyze the factors that impact the profitability of the underlying assets of the target company, finding that the most important factor is the asset-liability ratio of the target company. This factor can explain the phenomenon that the profitability of the company's underlying assets appeared to decline sharply and convertible bonds issued in china can improve the corporate governance performance of the target company, but the effect is not very effective.In order to make China's listed companies to make better use of convertible bonds, this paper proposes the main following suggestions based on theoretical and empirical research findings combining the reality of china. Including the greater risk company should issue the debt-like convertible bond, the list company should design the terms of the convertible bond combining your own characteristics in order to avoid the terms serious convergence, the regulatory authorities should further deepen the split share structure reform and strengthen the earnings management of listed companies and monitor the efficiency of the use of funds and so on.