Research On The Efficiency Of Enterprises' Convertible Bonds Financing

The efficiency of enterprises after convertible bonds (CB) financing absorbs universal concern overseas; moreover, the CB market and its theory overseas already achieve quite mature level. In recent years, CB financing is emerging in Chinese capital market as a new financing tool and its scale also rises year by year, but the research on the efficiency of enterprises after CB financing is still keeping blank, therefore, it is challenging to research it regardless of theoretically or practically, and is also a question worth thoroughly exploring and researching. The theory overseas pointed that CB financing can improve the performance of the enterprises, and then, is this theory fit for Chinese situation? How does it influence the efficiency of enterprises? What are the change of the performance, the capital costs and the risk? What is the reason of the change? All of the questions will be replied in this study.Some of the researches on the efficiency of enterprises after CB financing made by foreign academician are as follows:Essig(1991),Nobuyuki(2000) researched the behavior of CB financing from different aspects, and show that some of enterprises can eliminate the external financing costs relevant to bonds and stocks and impel the management make more efficient decision in the way of designing the CB terms. As the result of it, the performance of enterprises can be improved.Jensen and Meckling (1976) thought the CB is characteristic of double attributes of creditor's rights and stock option. The issuance of the CB can cut down the motivation that shareholders rob creditors'interests, and accordingly the CB is favorable to the performance of enterprises. Isagawa(2000)made use of a very simple model to demonstrate that CB with redeemable terms has its unique advantages of restraining the management rank's opportunism. It is also proved by Mayers(1997)from the aspect of financing capability.But the academicians, such as Hansen and Crutehley (1990), Lee and Leughran(1998), McLaughlin and Safieddine(1998), JoLewis and Rogalski(2000) found in the experimental study that the enterprises of CB financing can't improve their performance as expected, and reverse, the performance of the enterprises declined.The study is focus on domestic listed companies for the reason that unlisted companies'financial data hard to obtain, and carries out the experimental analysis method to research the efficiency of enterprises after CB financing in 3 aspects: the changes of the performance, capital costs and risks.The enterprises that issued CB before the year of 2000 are particular, most of them haven't gone to market at that time, so the study eliminate them. In addition, it is no way to obtain the financial data of the year 2006 so far, so this study also eliminates the enterprises that issued CB in and after the year of 2005.And moreover, China Minsheng Banking Corporation limited and China Merchants Bank Co,. LTD. belong to financial industry. Its financial data can't compare with others, so they are also eliminated from the study. Then, our research samples are 33 domestic listed companies that issued CB between the year 2000 and 2004.The data needed in the study are obtained from CSMAR DATABASE, and the information of the enterprises of CB financing is obtained from China's Securities Regulatory Commission, Shanghai and Shenzhen Stock Exchanges, Juchao and Hexun Information Networks, and some financial books.For eliminating the influence of industry and scale on efficiency of enterprises, this study set a control group as the comparision standard.This study learns from the academicians's achievements in and out of China, and use Market Model when analyzing the risks of stocks. Rit=αi+βiRmt+εitAmong them, Rit is stocks'income rate of one enterprise in the time t , Rmt is market income rate in the time t,αi andβi is model parameters, andεit is the stochastic item. This study uses daily income rate.(1)βi is the result afer regression of above equation;(2)the total risks of the stock are the variance of the daily income rate of the stock;(3)system risks are caculated by multiply the variance of daily market income rate by the square ofβcoefficient;(4)non-system risks is reduction of the total risks to system risks;(5)the proportion of system risks is devided system risks by the total risks of the stock;(6)non-system risks is devided non-system risks by the total risks of the stock;This study uses CAPM modle to analyse equity capital costs. That is: Ks = RF +( RM?RF)βKS is equity capital costs; RF is interest rate without risks; RM-RF is long-time average price of market risks, namely the market risk premium, and also the balance of market income rate and the non-risk income rate. Generally, it is caculated on average in most years;βRepresents for risks of the enterprises;When analysing the change of performance, this study chooses 5 financial indexes, such as ROA, CFOA, CROA, ROE and CROE. The total assets and net assets are calculated by beginning sum (opening sum).This study adopts the same method below when analyzing the efficiency of enterprises CB financing. The concrete analysis procedure is: firstly, without consideration of other factors, only compare with the financial data of adjacent 2 years of the sample enterprises. This study defines the base year of CB financing as 0 year, the previous year as -1 year, and the latter year as 1 year. That is, the study compare the financial data of -1 year with 0 year and 0 year with 1 year, and then uses non-parametric test ( Wilcoxon signed-rank test) of 2 related samples to analyse the financial data of adjacent 2 years. Secondly, in consideration the factors of industry and scale, compare the financial data of -1, 0, 1 year respectively with the data of the control group. And the analysis method is non-parametric test (Mann-Whitney U-Test) of 2 independent samples.The experimental study on risks of enterprises comes to a conclusion that, after CB financing, the total risk dropped, non-system risks increased significantly, system risks decreased significantly, theβcoefficient reduced too. And the total risks of enterprises issued CB are less than the total risks of control group.The experimental study on equity capital costs of enterprises comes to a conclusion that CB Financing reduced the proportion of equity capital and equity risk, thereby reduced the equity capital cost.The experimental study on the performance of enterprises comes to a conclusion that there has been no improvement in performance afer CB financing. Instead, the downward trend in performance of the company appeared. This shows the theory overseas that pointed CB financing can improve the performance of the enterprises is not suitable for China, and it is undesirable behavior to try to improve performance through the issuance of CB.Finally, this study made multiple regression analysis on the reasons for the decline in performance of enterprises afer CB financing. The results show that:1)The larger scale of financing, the poorer performance afer CB financing; 2) The poorer financial situation, the poorer performance afer CB financing; 3) The greater proportion of debts to owner's rights and interests, the poorer performance afer CB financing. And it shows from the indexes of 2 adjacent years of the samples, that there existed the conducts of profit manipulation. The purpose of the conducts is to achieve laws and regulations stipulated by the States, and to get large sum of financing through high issue price. Maybe it is the most important reason for the decline in performance of enterprises.Through the experimental study, this paper considers it necessary to evaluate the financial situation and company government level of enterprises that want to financing CB, and make further improvement in the design of evaluation criteria. Despite an increase in the level of supervision before the company issued CB can restrain profit manipulation, the bad conduct of significant profit manipulation still come evident after financing for the loss of effective supervision from various quarters. This shows that it is necessary to strengthen supervision of financial practices after the refinancing of listed companies.The conclusion of this study has great theoretical and practical significance for standardizing the CB financing of listed companies in China, improving efficiency of enterprises, and promoting the innovation of financial derivatives tools to play a positive role in China's capital market.