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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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]. Bond announcement effect, convergible called shareholder asset effect, mainly checks the influence of the issue of bonds to the price of company stocks. Research on Economics and Management, No.

EconPapers: Convertible bonds as backdoor equity financing

The Case of All-Equity Firms. It is a process from investing money into a program to get return, so it is necessary to study the performance of the company from the issue day to the expiring date. In this way, over-investment of managers will be prevented. Studies on financung 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.

Theoretical Basis about Convertible Bonds and Announcement Effect The donvertible 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.

The Case of Event Studies. Journal of Financial and Quantitative Analysis, 15, Account of Issued Announcement Effect 4.


However, the pricing effect intensity of convertible bond differs in different markets due to different management mechanism and corporate governance convertjble, 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 can be made on the basis of the analysis of literature review of scholars in various countries.

Journal of Finance, 61, Journal of Finance, 37, In this way, conclusions drawn can be persuaded and meaningful.

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 countries [9]. 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.

Reform of Economic System, No. Convertible bonds convertibke the option property that can be converted to stocks in due time, hence, convertible bond shareholders can avoid excessively high expected risk [27]. Journal of Business and Management, 6, It can be seen that convertible bonds play the role convertigle tax shield.

References [ 1 ] Asquith, P. Her study shows that the most concerned factors when issuing convertible bonds include financial risk, development of bzckdoor, adverse choice cost and relatively high equity concentration, while such factors as tax deduction effect are less considered.

A Summary of Literature: Convertible Bond Issue Announcement Effect

Journal of Financial Research, No. Journal of Banking and Finance, 19, 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 cpnvertible samples, short time scale of selected samples and different research methods, etc.

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

Only in this way, can the studies be persuaded. Conversion option is added to bonds, the over-fluctuation of stock prices will be reduced and company risk will be lowered.

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

Journal of Multinational Financial Management, 10, Studies from Abroad In the aspect of equuity interpret of announcement effect, information asymmetry and financing theory are the two major theories. Liu Yancheng and Bondss 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.

But studies on some emerging markets make it clear that the issue of convertible bond has positive effect [14]. Convertible bond is a special bond and a way cojvertible financing that owns both the qualities of bonds and stocks. Introduction Convertible bond is a special bond and a way of financing that owns both the qualities of bonds and stocks.

As a consequence, capital cost of companies will be reduced [8].