Comparative Study On The Factors Effecting The Choice Incentive And The Announcement Effect Of Convertible Bonds

Compared with general corporate bonds,convertible bonds have lower issuing cost because of its nature of call option.And issuing convertible bonds has less negative impact on stock price than common shares.Therefore,preview research suggested that convertible bonds can be seen not only as a low-cost debt financing,but also a "backdoor" equity financing.However,in China's capital market,convertible bonds are not as common as corporate bonds and public issuance.There seems to be a conflict between theoretical analysis and market practice.If the basic goal of a company is to maximize shareholder wealth or company value,then the external market reaction or signaling effect will be considered when financing.Thus,the company will have incentives to transfer some positive information out,at least those real information of operation and management.So the influence of those factors which drive listed companies to choose convertible bonds on issuing decision and announcement effect should be consistent.Otherwise the signal will become misinformation and may undermine company value.According to this logic,this paper empirically studied the influence factors of decision of convertible bonds and the issuance announcement effect of convertible bonds,in order to compare the companies' understanding and investors' understanding and to explain the difference between theory and practice on the convertible bonds decision.This paper can be divided into three parts.Firstly,it studies the factors which influence listed companies' choice of convertible bonds rather than corporate bonds,public issuance,rationed shares or other direct financing.Second,do these factors affect the market response after the convertible announcement? If yes,how? At last,this paper compares these factors' influence on issuing decision and the announcement effect of convertible bond.This paper selects China's listed companies in main board market who issue convertible bonds,corporate bonds and common shares from 2006 to 2015 years as samples and chooses financial risk,growth ability,profitability,agency cost,capital structure,company size and market share dilution degree,which reflect companies' quality,market and issuance provisions,using Logistic model,event study,and multiple regression analysis to compare influence of these factors on the issuing choice and announcement effect of convertible bonds.The study found that only the asset liability ratio,the growth rate of main business income and ownership concentration has significant influence on the choice of convertible bonds of listed companies.Higher asset-liability ratio is more inclined to drive companies to choose other financing methods,while the influence of growth rate of main business income and ownership concentration are opposite.Based on the abnormal returns of event day and cumulative abnormal return of(-1,0),this paper believe there is a significant negative announcement effect of convertible bonds.Regression analysis found that the asset-liability ratio,equity dilution and announcement effect as negative correlation,while the growth rate of main business income,company size and announcement effects are positive related.Obviously,for China's listed companies in main board market,financial risk,growth rate,ownership structure affects the choice of convertible bonds.While when investors evaluate a financing choice of convertible bonds,main basis of corporate financial risk,growth rate,asset size,and convertible bond dilution will affect.Most importantly,when a company has lower asset-liability ratio or higher growth rate,it will be more inclined to choose convertible bonds,and investors will be increasingly optimistic about the issuance of convertible bonds,therefore the market value of the company will increase.As for market quotation and issuance provisions will not impact the judgment of investors and companies themselves.