Download Citation on ResearchGate | Convertible Bonds as Backdoor Equity Financing | Pigovian taxation of externalities has limited appeal if the tortfeaser. This paper argues that corporations may use convertible bonds as an indirect ( albeit . Backdoor equity financing hypothesis of Stein () receives universal . Thu, 08 Nov GMT convertible bonds as backdoor equity pdf -. Convertible financing. Jeremy C. Stein* bonds as backdoor equity. Massachusetts.

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Studies in China Studies on the issue of convertible bonds of listed company start late in China, and only a few study fruits can be found. Journal of Multinational Financial Management, 17, Conversion option is added to bonds, the over-fluctuation of stock prices will be reduced and company risk will be lowered. The short-term market performance of convertible bonds refers to the direction and degree of influence that convertible bond issued announcement has on the stock price of listed company, also called announcement effect.

As a consequence, its cost is below that of private company bonds. Introduction Convertible bond is a special bond and a way of financing that owns both the qualities of bonds and stocks. A Summary of Literature: Studies indicate that the cost of convertible bonds refinancing for listed company in China is significantly lower than that of equity refinancing.

Journal of Finance, 37, Journal of Multinational Financial Management, 16, Since the first issue of convertible bond in the year ofconvertible bond has become one of the most important financial ways in capital market.

Research on Economics and Management, No. They believe that convertible bonds charge different rates for interest and dividend, and in this way, its property of reducing tax will stand out. The mechanism of positive influence that convertible bond has on performance is as follows: European Financial Management, 10, Studies on the issue of convertible bonds of listed company start late in China, and only a few study fruits can be found. Journal of Financial Economics, 15, In China, researches prove that convertible bond issue pre-arranged plan will have clear negative effect, but there are a lot of controversies over the explanation of negative effect at home which mainly result from the limitation of the amount of samples, short time scale of selected samples and different research methods, etc.


Zhang Weidong believes that when listed company issues convertible bonds, market performance will not decrease notably because there is no exploitation that non-circulation shareholders impinge on circulation shareholders [23]. Account of Issued Announcement Effect 4.

A Summary of Literature: Convertible Bond Issue Announcement Effect

Journal of Finance, 42, Issued announcement effect differs owing to the different natures of different financing tools. Meanwhile, income tax will be reduced due to tax shield effect of bonds. Finance and Accounting Monthly, No. De Roon and Veld study stock market influence of convertible bond in Holland and find out that abnormal profit rate is 0. Due to the relatively large uncertainty of the announcement effect between stocks and bonds, different announcement effects occur in different countries and during different periods.

At the same time, unlike normal bonds that need to pay huge amount of interest and burden financial crisis that pay for huge debts, they put forward tax deduction effect on the basis of study. However, the pricing effect intensity of convertible bond differs in different markets due to different management mechanism and corporate governance structure, among which the American market is the most significant [12]convertible bond issued announcement in European and American market has less negative effect than that in American market [13].

Conclusions Conclusions can be made on the basis of the analysis of literature review of scholars in various countries.

Please enable JavaScript to view the comments powered by Disqus. Journal of Financial Economics, 32, The interest of convertible bonds is less than pure bonds. Journal of Finance, 50, Her study shows that the most concerned factors when issuing convertible bonds include financial risk, development of company, adverse choice cost and relatively high equity concentration, while such factors as tax deduction effect are less considered. The cost of convertible bond is obviously lower than that of bank loan as well as the level of cash bonus.

Bond announcement effect, also called shareholder asset effect, mainly checks the influence of the issue of bonds to the price of company stocks. Journal of Multinational Financial Management, 10, ABSTRACT Convertible bond, whose holder has the right to convert backdokr into backdor in accordance with the agreed terms of the bond within a certain period, combines the common features of the bond and stock.


Once converted, financial pressure will disappear [3].

Journal of Business and Management, 6, An Empirical Analysis for Chinese Market. Convertible bond market in China is still on the way of development, the amount of issue is limited, and researches in this area at home start late.

Journal of Financial and Quantitative Analysis, 15, Case study is usually applied in binds effect and abnormal return rate is computed by market model. It can be seen that convertible bonds play the role of tax shield. Liu Yancheng and Wang Qiwen study convertible bond samples of 21 companies and study indicates that there is no significant abnormal profit on neither the day after nor before the announcement day, with 0.

Chinese Review of Financial Studies, No. In the aspect of study of convertible bond issue motive, scholars from abroad have deeper researches and put forward various hypotheses and then verify them. Scientific Research An Academic Publisher.

Convertible bonds as backdoor equity financing

Journal of Financial Research, No. The Case of French Convertible Bonds.

Studies indicate that the issue of stock financial tools will have prominent negative effect on stock prices, while the issue of bond financial tools will have positive effect on stock prices [5]. Comvertible put forward continuous financing hypothesis on the basis of the uncertainty of future investment equity value [30].

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The article gives the literature review on the issue of announcement effect and its influencing factors of target stocks. Convertible bond is a way of financinf money for listed companies and its purpose is to obtain return from investment.

Suppose that personal stock return rate has a linear relationship with market return convertiible and stock return regression model will be built on market return rate.