Empirical Study On Financial Strength Of Convertible Bond In China

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 recent years,as a hybrid type financing tool which has the characters of both stock and bond, convertible bond has been becoming one of the most important further financing tools for listed companies. This paper examines the strength of convertible bonds by empirical study,following three aspests:earnings per share (tax shield effect and dilution effect),cost of capital and announcement effect.First,we take NanShan Aluminum as an example and analyze the tax shield effect and dilution effect of the CB financing. We conclude that financing from CB is better than stock or debt, which improves the investors'income to a great degree. So CB is the best choice for listed companies.Second,we examined the cost of capital of equity refunding and CB by empirical study.We use the GLS model to examine the cost of capital of easoned equity offering and allotment of shares,then we use The Option Pricing Model Method to compute the cost of CB.we conclude that the cost of capital of CB is lowest.What's more, 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 paper hopes to get a comparative advantage through the study on the stock-price effect of CB.This paper selects companies that issued CB between 2006-2008 as a sample, conducts an empirical study and finds that CB in china has no stock price effect substantially.