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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Journal of Financial Economics, 47, convertibe Case study is usually applied in announcement effect and abnormal return rate is computed by market model. Studies from abroad on convertible bonds has a long history and are relatively comprehensive which benefit from the mature capital market in developed capitalist countries [9].

An Empirical Analysis for the Dutch Market. There are a lot of papers on empirical study of convertible bond issued announcement effect and studies indicate that in most part of the market, convertible bond announcement appears negative effect in price [11].

When stock price of targeted company booms, external investors in security market will convert their shares, so cash will flow into the company and issue cost will be reduced.

A Summary of Literature: Convertible Bond Issue Announcement Effect

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. In the interpretation of announcement effect, it is mainly based on convertible bond issue motive theory and then proper variables are selected and interpreted in the end.

Issue cost and over-investment are emphasized in the two-period model he designs. The mechanism of positive influence that convertible bond has on performance is as follows: Studies from Abroad Studies from abroad on convertible bonds has a long history and are relatively comprehensive which benefit from the mature capital market in developed capitalist equigy [9].


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Reform of Economic System, No. Journal of Financial Economics, 21, Backdoor equity financing hypothesis of Stein receives universal acknowledgement and also is verified through empirical studies by many scholars [28].

Journal of Finance, 37, Compared with equity financing, company pays convertible bond investors certain amount of interest, bondd these shares of interest are the money that must be paid before tax, thus tax of company will be reduced.

Journal of Financial and Quantitative Analysis, 29, In this way, agency conflict between shareholders and creditors to a certain extent. Because the nature of financial instruments is different, there are differences in issued announcement effect.

EconPapers: Convertible bonds as backdoor equity financing

An Empirical Analysis for Chinese Market. Suppose that personal stock return rate has a linear relationship with market return rate and stock return regression model will be built on market return rate. In this way, over-investment of managers will be prevented. But studies on some emerging markets make it clear that the issue of convertible bond has positive effect [14].

Meanwhile the negative effect is mainly on the announcement day. Review of Financial Studies, 9, Conversion option is added to bonds, the over-fluctuation of stock prices will be reduced and company risk will be lowered. This paper mainly involves convertible bond announcement effect and issued motive.

Convertible bonds as backdoor equity financing

ABSTRACT Convertible bond, whose holder has the right to convert it into shares in accordance with the agreed terms finsncing the bond within a certain period, combines the common features of the bond and stock.

The cost of convertible bond is obviously lower than that of bank loan as well as the level of cash bonus.

Besides, convertible bonds exist longer abroad and issued quantities and the amount of money boncs convertible bonds are relative large. His study indicates issued announcement of detachable trade and convertible bonds of listed company has significant positive effect and further study shows that announcement effect is influenced by issue scale and dilution rate.


Conflicts of Interest The authors declare no conflicts of interest. At the same time, the issue of convertible bonds will ease profit dilution which is caused by the over-quick expansion of capital stocks. As a consequence, there are no uniform standards and theoretical analysis frame has been finxncing. Theoretical Basis about Convertible Bonds and Announcement Effect The short-term market performance of convertible bonds backdood to the direction and degree of influence that convertible bond issued announcement has on the stock price of listed company, also called announcement effect.

Pei Zhenzhen makes a comparison about listed companies which issued convertible bonds and public further issue during January, and April, on the basis of theories and hypotheses abroad [34]. We hope to be able to provide some inspiration for the development of the convertible bond market. In this way, conclusions equitt can be persuaded and meaningful.

Journal of Finance, 50, A Summary of Literature: Journal of Financial Research, No. Mayers put forward continuous financing hypothesis on the basis of the uncertainty of future investment equity value [30]. Journal of Financial Economics, 13, Conclusions Conclusions fibancing be made on the basis of the analysis of literature review of scholars in various countries. They put forward various hypotheses and at the same time have the hypotheses tested.

As a consequence, its cost is below that of private company bonds.