The Analysis Of Financing Advantages Of Convertible Bonds

A convertible bond is a mid-long term financial instrument which is in the middle of stock and bonds, and possesses natures of both debt and options. It is in the category of corporate bonds, and promises certain rights to investors. During the period from release date to expiration date, investors can choose to hold interest income until the expiration or convert it into corporate stock in conversion period.In the analysis of the financing advantages of convertible bonds, this article chooses following aspects: market access, interest cost, financing time, capital structure optimization, tax shield effect, dilution effect, earnings per share, and relevant risk.In Chapter 2, the writer conducts a qualitative analysis from several angles such as market access, interest cost, financing time, capital structure optimization, tax shield effect and dilution effect, and finds some common advantages of convertible bonds compared to stock and bonds. However, according to effective market theory, a way of financing which possesses all advantages does not exist; that is to say, every financing way has its special strength. For different companies and different develop stages, this is different conditions. But for a special.company, an advantageous financing way is likely to exist. This article begins from capital structure optimization, conducts a series of theoretical analysis, getting the prerequisite of convertible bonds capital structure optimization: good operation performance, quick growth rate, and the necessity of equity expansion.In Chapter 3, the writer conducts an empirical analysis on the financing advantages of convertible bonds from the aspects of return and risk. At first, the writer sets Baotou Irons & Steel Co. as an example, basing on its financial data, using tax shield effect and dilution effect to conduct a comparative analysis. Under the premise that financing way does not influence financing scale and financing projects, the writer arrives at the conclusion that compared with stock and bonds financing, convertible bonds gets high earnings per share. When evaluating a financing project of financing way, not only its return, but also its risk matters. This article uses financial leverage to compare three financing methods and finds that convertible bond's financial risk is conspicuously lower than that of bonds-finance, and a little higher than that of stock-finance. Both domestic and foreign researches indicate that the announcements of bond-finance and stock-finance will have negative stock-price effect; that is to say that the stock price will go down. This article hopes to get a comparative advantage through the study on the stock-price effect of convertible bonds. The result is that English and American markets have negative effect for financing announcement of convertible bonds, while Japan and Netherlands have positive effect. This article selects corporate that issued convertible bonds between August 2002 and December 2006 as a sample, conducts an empirical study and finds that convertible bonds in China's market has no stock price effect substantially.