Research On The Effect Of Issuing Convertible Bonds On Corporate Financial Performance

Raising capital can inject fresh blood to an enterprise for business development,which is one of the indispensable capabilities of an enterprise.Different financing methods have different effects on the enterprise.Choosing the financing method suitable for the enterprise itself is one of the essential factors to support its sustainable and stable operation and development.Convertible bonds,which falls between the stocks and bonds,has existed in western countries for nearly 200 years.However,the first convertible bond in China has only been issued for more than ten years.As a new emerging financing tool,convertible bonds have not been valued by Chinese enterprises and investors in the past decade.Until the China Securities Regulatory Commission(CSRC)revised and issued The Detailed Rules for the Implementation of Private Placement of Listed Companies in 2017,convertible corporate bonds,as an encouraging financing method,led to the prosperity of its development.From 2017 to 2019,the quantity of convertible bonds issued in China has shown explosive growth.Convertible bonds have the dual characteristics of equity financing and debt financing.It not only gives bondholders the right to obtain capital and interests when they are due,but also gives creditors the right to shift their bonds into shares of the enterprise.For the issuing company,choosing to issue convertible bonds for financing not only has fewer restrictions and large scale of financing,but also has lower coupon rate and less debt repayment pressure than ordinary bonds.When creditors shift convertible bonds to shares,the enterprise's debts will become the owner's interests,which will indirectly optimize the whole capital structure.In comparison with direct equity financing,the dilution speed of holding convertible bonds for shareholders' equity is slower,which is more acceptable to original shareholders and more positive to the market.With the rising of convertible bonds in recent years,more and more issues are worth to be concerned by people.This paper selects Sany Heavy Industry,an enterprise that issued convertible bonds in 2016,as a research case,and analyses the impact of the issue of convertible bonds on the financial performance of enterprises.This paper will first focus on the relevant researches and theories,then analyse the issue of convertible bonds in that circumstance,and ultimately explore the impacts of issuing convertible bonds on Sany Heavy Industry's financial performance.In this part,first,it analyses the direct impacts of issuing convertible bonds from three aspects:capital structure,enterprise's solvency and shareholders' equity.Afterwards,it will interpret further impacts from the perspectives of profitability,capacity of operation and financial risk.Finally,based on EVA,the paper will demonstrate a comprehensive assessment from this case study.The final section will,based on above researches,sum up the positive effects of the performance of an enterprise by issuing convertible bonds.To specific,that will contain four aspects:optimizing the enterprise structure,improving the enterprise's solvency,enhancing the enterprise's profitability and reducing the enterprise's financial risks.In contrast to the above,it,however,will cause the dilution of shareholder's equity to some extent.