Issuance Announcement Effect And Equity-Like Of Convertible Bond In Chinese Market

As an innovative financial derivative, convertible bonds in foreign mature markets have experienced a history of more than 170 years, but with only 24 years in China Stock Market. With the continuous development of domestic capital market, in order to attract the attention of investors, a growing number of domestic listed companies are inclined to issue convertible bonds which have relatively high earnings but low financing costs. Overseas, scholars have studied the announcement effect and equity-like of convertible bonds, which also get some support with theoretical models and the relative study still on the road. However, as China's securities market is born in special economic system background, where listed companies is highly concentrated, excessive financing tendency is obvious, and major shareholders infringe the interests of minority shareholders and so on, So domestic scholars cannot study the announcement effect and equity-like of convertible bonds according to the classical hypotheses and models. Domestic academia have done a lot of research of the announcement effect of convertible bonds, but the conclusions vary widely; additional research on the equity-like of convertible bonds are still relatively limited, studies have also less than normal. The purpose of this paper is to discuss the announcement effect and equity-like of convertible bonds based on the calculation and analysis of the latest data, in the context of the actual situation of our country. Specifically, this paper attempts to answer three questions:First, whether there is the announcement effect of convertible bonds? Second, if yes, what is the relationship between the announcement effect of convertible bonds and equity-like of convertible bonds? Third, which factors will affect the equity-like of convertible bonds? Based on these three major problems, the research content of this paper can be divided into seven chapters. The outline of this paper is as follows:The first chapter is introduction, which presents the starting point, the significance, and the main ideas of research, the basic framework and possible research contributions.The second chapter presents the history of the announcement effect and equity-like of convertible bonds at home and abroad. First, I sort out the theoretical models, which study the effects, that convertible bond financing on the stock price. Second, I analyze the domestic and foreign relevant literature of the announcement effect and equity-like of convertible bonds. Finally, discussing classical theoretical models overseas suit the situation in China or not and the lack of domestic research.The third chapter expounds the equity-like and debt-like of convertible bonds. First, from the concept and the characteristics of convertible bond, I analyze the hybrid of convertible bonds, which combine characteristics of bonds and equity. Second, this paper analyzes the equity-like of convertible bond from the basic terms of the convertible. Finally, I analyze the convertible bond financing, which include the advantages and disadvantages of convertible bonds financing and the method of valuation and the gradients of value of convertible bonds.The forth chapter presents an empirical study of the announcement effect of convertible bonds. First, I collate and analyze the research data of this paper, and make descriptive statistics of the sample. Second, using event study, through market adjustment model examines the market reaction to the announcement effect of the convertible bond, and compares the announcement effect before and after the reform on equity divisional structure. Finally, check the robustness.The fifth chapter is the further research of the announcement effect of the convertible bond from the perspective of equity-like. We use Delta to measure the equity-like of convertible bonds, and make the descriptive statistics of our convertible bonds. Then, this paper studies the relationship between the announcement effect and equity-like of convertible bond.The sixth chapter studies the influencing factors of the equity-like of convertible bond. First, we select the explanatory variables in terms of issuer characteristics, features of the stock market, and equity division reform, and then construct a basic multiple regression model. Second, the two subsamples (equity-like convertible and debt-like convertible) were analyzed by descriptive statistics. Then we use the weighted least squares method to examine whether the explanatory variables significantly affect the dependent variable. Finally, we check the robustness.The seventh chapter summarizes main findings of this paper, put forward policy suggestions and the shortages of this paper.In summary, this paper finds out:(1) The regression results show that convertible bond announcements induce positive stockholder reactions in China. Also the split share structure reform and '"bear" or "bull" market both affect the absolute value of abnormal returns. Specifically, before the split share reform is completed, convertible bonds announcement induce negative excess returns; after the split share structure reform, the announcements of convertible bonds have a positive excess return. In a bull market, the underlying stock has a significantly positive excess yield 1.901% in the day of convertible bonds issued announcement. However, in a bear market, the underlying stock has a positive excess return 0.142%, but not statistical significantly.(2) In China, the equity-like of convertible bond is generally higher. The regression results show that equity-like of convertible bonds and the announcement effect of convertible bonds has a significantly negative correlation relationship. This suggests that the more equity-like of convertible bonds, the announcement induce more negative excess returns, which is consistent with the pecking order theory.(3) This paper takes gearing ratio, volatility, slack, stock run-up, proportion of fixed assets, roe, the size of company, the relative size of the issue as explanatory variables to account for the equity-like of convertible bonds. The regression analysis finds that the equity-like of convertible bonds has a significant negative correlation relationship with volatility and the proportion of fixed assets. Thus it can be seen, the company with more stock volatility and more proportion of fixed assets, will issue more debt-like convertible bond.The possible contributions of this paper are:(1) This paper studies the announcement effects of convertible bonds from the perspective of the reform on equity divisional structure, the stock market situation as well as the equity-like of convertible bond. The regression analysis finds that the average cumulative excess return has a significant correlation relationship with the reform on equity divisional structure, the stock market situation, and the equity-like of convertible bond. The results enrich related literature.(2) At present, there is small part of domestic literature on the equity-like of convertible bond. Moreover, among which scholars study the equity-like of convertible bonds mainly from the terms designed, also are qualitative research. This paper does the quantitative research on equity-like of convertible bonds, from the terms of issuer characteristics, the performance of securities markets and so on. It enriches related literature.The shortages of this paper are:(1) This paper has only 101 samples, which is a little small for empirical research. This paper only discusses the share price effect of convertible bonds issue announcement, without discussing the share price effect on other events dates.(2) This paper only studies the short-term announcement effects of convertible, without discussing the long-term announcement effects of convertible bonds. The measurement of the equity-like of convertible bond may be not very accurate. Because it does not take into account many terms of the convertible bonds (especially path-dependent terms).