The Effort Of Convertible Bonds On Company Performance And The Reason Analysis

The financial theories think the convertible bonds financing can solve some financial problems, such as the agency problem and the optimal capital structure problem, so it can improve the company's performance. But in China's special financing environment, what is the effect of convertible bonds financing? This article did the empirical event study for this topic.At first this article analyzed the effort of convertible bonds on market and financial performance using the standard research method in the theoretic basis, and introduced the special financing environment of China. Then this article did the empirical event analysis using the Wilicoxon signed-rank test for the market and financial performance of companies which issue convertible bonds. The event study found that the market performance has improved a lot after the first year issuing the bonds. For the financial effort, the convertible bonds issuing companies have good performance, but in the issuing year, although the financial indexes have changed little for the issuing companies, it grew slowly comparing with their compared companies. The convertible bonds financing does not improved the financial performance as it should be in the theory.In the following section this article explained the reason for this situation, from the financing cost at first and made the Yun Hua convertible bond for the case study then toward the risk of the convertible bonds financing. Through the event study, we found that convertible bonds financing has not deducted the companies'risk. This article also explains the reason in the system aspect. At last this article examined the clauses of the convertible bonds, it is found that most of the convertible bonds are equity-like. The issuing companies hope the convertible bonds convert to the stocks successfully, during the converting period, most of the companies amend the conditions of the conversion in order to make it convert successfully. In fact, the convertible bonds have no effect of paying back the principal and interest on the managers, so the convertible bonds'strength has not developed well in some degree.