Analysis Of Convertible Bond Financing On Corporate Performance

Convertible bonds as a financial derivative, has been100years of history in overseasmarkets. Owning to it is the combination of equity optionality and debt, more and moreoverseas fund raisers are likely to choose this tool. It has become a widespread andsophisticated financial tool in the international capital marketsIn recent years, with the rapid development of market economy, convertible bonds, asnew financial instruments are becoming more and more popular in our capital markets. Itsappearance will have a profound impact on China’s securities market. Currently, domesticscholars have do something on the study of convertible bonds, they primarily focus onfinancing motive, terms of design, pricing and financing advantages. The researches ofperformance changes caused by convertible bond financing are less and conclusions are notthe same. With the standardize of China’s securities market, especially the gradualimprovement of relevant laws and regulations in recent years, previous studies are notsuitable to the current financing situation of the domestic market.Firstly, this paper summaries the literature of convertible bond at home and abroad.Based on that, study the mechanism between convertible bonds and corporate performance,propose convertible bond financing has certain superiority than other means of financing.Secondly, this paper selected the34listed companies during2007to2009whichfinancing through convertible bonds. I have done a factor analysis to8financial indicatorswhich can represent the corporate performance very well, then getting comprehensivefactor scores of issuancing convertible in the previous year, the year and two years after.Use the Wilcoxon rank sum test methods to inspect these four period to see whether thechange is significant. Studies have shown that in the financing year, the company had amarked decline in the convertible bond financing and other time periods did not changesignificantly. Macroeconomic will have impact on corporate performance, but this effect isdifficult to assessment. Then, this paper analysis the listed company just at the micro level.This paper futher analysis the influencing factors on the performance changes in the declinetime on the basis of previous findings.Finally, this paper explore performance decline factors on the basis of summing up the theory and in terms of capital structure, company size, company growth, convertiblebonds, the terms of the design, agency costs and financial risks. Studies have shown that theconvertible bond financing performance inversely proportional to asset-liability ratio andfinancial leverage, however proportional to the other indicators. Through the analysis ofresearch results, I fund that there are some inadequacies in convertible bond financing inChina, such as, the present laws and regulations are incomplete, the subjects are notappropriate and the provisions are unreasonable. Finally, this paper provide reference tothe refinancing of listed companies in China.