A Study On The Wealth Effect Of Convertible Bond Issuance Announcement

With the development and improvement of Chinese security market,the security market has gradually become an important financing method for companies listed on the stock market.Convertible bonds have appeared in China for nearly 30 years and developed rapidly.They have become an indispensable way for financing.Compared to the abundant literatures and results of the empirical research conducted abroad,the domestic research on the announcement effect of convertible bond issuance is still insufficient.At the same time,because Chinese capital market still belongs to the emerging capital market,it is different from the developed markets in foreign countries.The Chinese market has many characteristics unique.For example,the Chinese market does not allow investors to short stocks on their own,and only a short-selling mechanism is available.What is the impact of the shortselling mechanism on the wealth effect of convertible bonds? This is the significance of this research.At first,the article summaries several theories and hypothesis of convertible bond and finds that in the developed capital markets,the wealth effect of convertible bond is usually negative,while the wealth effect of convertible bonds in Chinese capital market is uncertain,so what is the reason for this difference? Through the summary of the existing literature and the study of Chinese capital market,the paper proposes that the limitation of short selling will weaken the negative effect of the issuance of convertible bonds.On this basis,74 convertible bonds issued in China's securities market from June 2014 to June 2018 are taken as samples.The first announcement day of convertible bonds issued is the event day.The announcement effect of issuing convertible bonds is measured by the abnormal rate of return calculated by the market model using the event analysis method.Through the statistical analysis of the average abnormal rate of return on announcement day,we find that the announcement effect of issuing convertible bonds by announcement of Listed Companies in China is greater than zero,which mean that the announcement of issuing convertible bonds has a certain positive impact on the market.On this basis,the article takes the abnormal rate of return on the day of the event as the explanatory variable,establishes a regression model with the company's financial indicators,whether there are announcements of other major events and whether there are short selling restrictions on securities trading as explanatory variables.And the article makes an empirical study on the influencing factors of the announcement effect of convertible bonds in Chinese security market,and draws some conclusions based on our capital market.Finally,some problems based on Chinese convertible bond market are discussed and some suggestions are brought up.There are still some shortcomings in the article.First,the sample size is not large enough.Compared with developed markets,Chinese capital market is still in the development stage.So,the development history of convertible bond is short and the capital size is small.Secondly,the paper focuses on the short-term announcement effect of convertible bonds.Due to article length and personal ability,the article fails to analyze the wealth effect of convertible bonds from a long-term perspective.