Research On Announcement Effect Of Convertible Bond Of Listed Company In China

Convertible bond, which is a hybrid derivative security, has the characteristics of bond and call option. For the companies, it can provide stable funds and reduce borrowing costs, also the convertible bond interest play a part in tax avoidance. For the investors, convertible bond act like a bond before exchanging into common stock and investors can change convertible bond into common stock. This article studies the announcement effect of the stock after the convertible bond issued with classical theory in china financial market. We hope that we can understand china convertible bond market better through this research, and promote the development of china convertible bond market.This paper research the announcement effect of convertible bond with 77 convertible bond issues in china from January 1,2002 to December 31,2012. We choose the day when the convertible bond prospectus published as the event day. The outcome suggests that the company has positive abnormal return around the event day. A significant negative cumulative abnormal return of -1.65% is accumulated in five trade days after the event day. Since the sample experienced a split share reform, the impact on China's stock market is very far-reaching, and China's stock market has a qualitative change after the share reform. So this paper according to share reform act as the critical point, and find the announcement effect of convertible bonds was negative before the share reform but not significantly; while after the share reform is positive and significant. This paper according to bull and bear markets in stocks as a dividing point, find convertible bonds announcement effect is positive in the bull market, but in a bear market announcement effect is negative, showing that the market environment on the announcement effect of convertible bonds have a certain impact.This paper choose the abnormal return of the convertible bond prospectus published day as the dependent, and choose 10 independents, which reflect the characteristic of convertible bond, the characteristic of the issue firms. We make the multiple linear regression, the results of the study illustrates that the abnormal return has a positive correlation relationship with the debt ratio, corporate growth. The abnormal return has a positive correlation relationship with the company scale and the relative issue size.