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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In western countries, due to mature stock market, scholars have a head start and have a relatively thorough study in convertible bond influencing factors.

Journal of Banking and Finance, 19, A Summary of Literature: In the aspect of the interpret equigy announcement effect, information asymmetry and financing theory are the two major theories. Journal of Financial Economics, 32, Journal of Banking and Finance, 22, Only in this way, can the studies be persuaded. The contrast derives from different corporate governance.

EconPapers: Convertible bonds as backdoor equity financing

An Empirical Analysis for the Dutch Market. The article gives the literature review on the issue of announcement effect and its influencing factors of target stocks. Journal of Finance, 50, The study is carried out through the performance of market stock price after the issue of convertible bonds. As a consequence, capital cost of companies will be reduced [8]. Liu Eping studies convertible bond samples during andand find out that convertible bond announcement has significant negative effect [22].

Generally speaking, we choose interpret variables on the basis of issue motive theory and then set up empirical models to carry out reasonable interpret on announcement effect and draw meaningful conclusions [25]. Journal of Finance, 57, Compared with equity financing, company pays convertible bond investors certain amount of interest, and these shares of interest are the money that must be paid before tax, thus tax of company will be reduced.


Convertible bonds as backdoor equity financing

The Case of French Convertible Bonds. Journal of Finance, 42, Studies from abroad on convertible bonds has a long backdokr and are relatively comprehensive which benefit from the mature capital market in developed capitalist countries [9].

Conclusions can be made on the basis of the analysis of literature review of equty in various countries. Issued announcement effect differs owing to the different natures of different financing tools.

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

Due to the relatively large uncertainty of the announcement effect between stocks and bonds, different announcement effects occur convwrtible different countries and during different periods. Therefore, the choice interpretation variable should combine with the actual situation in China. He makes a comparison about the three ways of financing cost. 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].

A Summary of Literature: Convertible Bond Issue Announcement Effect

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. American Journal of Industrial and Business Management6 Jalan and Barone-Adesi set a cooperative game model to check the motive of company to choose convertible bond financing [31].


We hope to be able to provide some inspiration for the development of the convertible bond market. Convertible bond is a special bond and a way of financing that owns both the qualities of bonds and stocks. 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 convegtible influenced by issue scale and dilution rate.

In the past, studies on finance performance of companies which have issued convertible bonds at home usually draw the conclusion that performance gets worse only on the basis of the data one year or two before or after the issue of convertible bonds. 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 convertibe methods, etc.

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