Research On Listedcompany's Performance Change Around Convertible Bond Offerings

Convertible bond as a sort of missed financial tool has advantages of both stock and bond. Because of the advantages, convertible bond has become one of the most important financing tools after the history of over 100 years. Convertible bond has a relatively short history in China. The first convertible bond was issued in the 90s of last century. More and more listed companies have interested in convertible bond since 2002. Convertible bond have become new favourite financing tool after seasoned equity offerings. The researches tell that the performance after seasoned equity offerings decreases. The question that receives considerable attention is how issuance of convertible bond affects operating performance of listed company. Investigation of this issue is important for investors for optimal allocation of their capital. It is also important for policy-makers to make full use of convertible bond.Firstly,we focus on the mechanism of the convertible bonds financing to the improvement of company performance. The dual characteristic of convertible bonds provides a flexible space for optimizing capital structure. If the degree of leverage is too high, convertible bond can decrease the degree through the behavior of converting or vice versa. In one word, the advantage of convertible bond can play important role on optimizing capital structure. The pervious literature shows that convertible bonds can decrease the information cost caused by information asymmetry and improve the performance. The literature review also show that convertible bonds can decrease the proxy cost between, shareholder and creditor, and the opportunism of the management. According to agency cost theory, convertible bond issuing will improve the performance of company. In essence, a convertible is a package consisting of a straight bond and warrants written on the issuing company stock. Companies can make use of such stock options to reduce the risk of stock. The risk of stock determines weighted average capital cost. The influence of weighted average capital cost is a major force in the performance of company.Next,This study investigates operating performance of company after it issues convertible bond by using 46 samples issued from 2002 to 2007. Research shows that compared to the industry group or themselves issued convertible bond the earning capacity within two years after issuance is downward trend. Compared to themselves, capacity for growth begin to decrease the second year after its issue.Compared to the industry group, the results show that there appears no significant decline in capacity for growth after a firm has issued convertible bonds.The last part is conclusions,suggestions,innovation and shortage of the paper.