Study On The Signaling Function Of Convertible Bond Issue In Chinese Market

According to the signaling with the convertible bond issuers and investors, this paper investigates the signaling function of convertible bond issue in Chinese market. Focus on the view of the issuers, this paper marks off the debt-like convertible bond and equity-like convertible bond with the standard of Burlacu(2000) to study the issue preference in Chinese market. The author finds that good companies are inclined to issue the equity-like convertible bond and bad companies are inclined to issue the debt-like convertible bond, which is opposite with the Stein(1992) Model. Focus on the view of the investors, this paper investigates the short-term rate of return and the long-term performance of convertible bonds with empirical research. The result shows that short-term rate of return is related to the premium of issue date and the dilution, which are the clause factors of convertible bonds. In addition, short-term rate of return is related to the earning rate, which is the fundamental factor, but the other fundamental factors are not the significant determinants of short-term rate of return. On the other hand, long-term performance is related to the cash flow,the earning rate and the growth rate, which are the fundamental factors, and independent of the clause factors of convertible bonds.