Research On The Motivation And Stock Price Effect Of Exchangeable Bond Offerings

Debt that is convertible into shares of a company other than the issuer is called exchangeable bond(EB).As a hybrid instrument of debt and warrant,EB offerings can help achieve financing or indirect equity reduction.This paper aims to study the motivation of EB offerings in Chinese market,and the stock price effects under different motivations.This study is based on the data from the Chinese market during October 2013 and December 2017.Samples are divided into debt-like group and equity-like group,according to the delta index in the B-S option pricing formula.Firstly,using logistic model,the study finds that firms with lower interest coverage ratio,smaller size,higher shareholding ratio or non-stateowned property are more likely to issue EBs for financing instead of general corporate debts.Then,using descriptive statistics,the study finds that firms choose EBs for equity reduction mainly to avoid time and size restrictions.Furthermore,t-test result shows that firms issue debt-like EBs mainly for loan repayment,and firms issue equity-like EBs mainly for risk avoidance.Finally,this paper conducts the event study respectively on board plan day,release announcement day,and conversion start day.The results indicate that the offering of EBs conveys the negative information,especially under the equity reducing motivation.Also,firms which aim to reduce equity will drive down stock prices before announcement day,in order to promote stock exchanging.This paper draws many conclusions which are of great significance to the investors,listed companies,potential issuers and regulators.The writer especially hopes to help investors make rational decisions,and help regulators to identify risks,thus promoting the healthy development of EB market in China.