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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Bond announcement effect, also called shareholder asset effect, mainly checks the influence of the issue of bonds to the price of company stocks. Studies on convertible bonds from abroad concentrate on convertible bond pricing, convertible bond investment, convertible bond announcement effect and its optimal execution strategy [10].

Studies from Abroad Studies from abroad on convertible bonds has bonvs long history and are relatively comprehensive which benefit from the mature capital market in developed capitalist countries [9]. They put forward various hypotheses and at the same time have the hypotheses tested.

At the same time, the issue of convertible bonds will ease profit dilution which is caused by the over-quick rinancing of capital stocks. Besides, convertible bonds exist longer abroad and issued quantities and the bacjdoor of money of convertible bonds are relative large.

Convertible bond is a way of collecting money for listed companies and its purpose is to obtain return from investment. 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]. Convertible bond is a special bond and a way of financing that owns both the qualities of bonds and stocks. Zhang Fknancing believes that when listed company issues convertible bonds, market performance convertkble not decrease notably because there is no exploitation that non-circulation shareholders impinge on circulation shareholders [23].


Backdoor equity financing hypothesis of Stein receives universal acknowledgement and also is verified through empirical studies by many scholars [28].

Journal of Financial and Quantitative Analysis, 15, Case study is usually applied in announcement effect and abnormal return rate is computed by market model. Suppose that personal stock return rate has a linear relationship with market return rate and stock return regression model will be built on market finanding rate. Research on Economics and Management, No.

Journal of Finance, 42, American Journal of Industrial and Business Management6 Therefore, the choice interpretation variable should combine with the actual situation in China. 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]. European Financial Management, 10, For those listed companies which plan further financing, the largest advantage compared with other ways of financing is its low cost.

As a result, investors will estimate company risk reasonably and over-investment and lack of funds will become less. 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.

Xu Ziyao choose further issue, convertible bond and stock allotment as research samples in order to explore the motive of the issue of convertible bonds of listed companies [33].

As a consequence, there are no uniform standards and theoretical analysis frame has been built. This is not scientific.


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The Case of Event Studies. Zeng Kanglin takes 20 listed companies which can issue detachable trade and convertible bonds during May 8th, and December 31st, and chooses the issue day of instruction booklet as the event day [24]. It is the right of choice that enables convertible bond a compound derivative with the characteristics of bonds and stocks which financin the features of its various influences on market.

References [ 1 ] Asquith, P.

EconPapers: Convertible bonds as backdoor equity financing

Journal of Financial and Quantitative Analysis, 29, Scientific Research An Academic Publisher. Only in this way, can the studies be persuaded. The Case of All-Equity Firms.

Since the conversion period of convertible bonds in quite long and capital stocks will increase gradually, financng profits of each share and net assets will be diluted step by step [4]. The Case of French Convertible Bonds.

Coonvertible of Banking and Finance, 19, 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 eqquity.

The paper is not in the journal. In this way, agency conflict between shareholders and creditors to a certain extent. Then, one of the motives of company to choose convertible bonds is to get lower external financing cost.

Journal of Finance, 61,