China's Convertible Bonds Issued Announcement Effect Research

Convertible bond, which combines the styles of bond and stock, has bigadvantage in finance and investment. Like foreign convertible bond market, the chinaconvertible bond market had a great development in the past several years. It hasbecome a very important way the listed companies refinance from the market. Thisarticle studies the announcement effect and the long-term perform of the stock atferthe convertible bond issued with classical theory in china financial market. We hopethat we can understand china ifnancial market better through this research, andpromote the development of china financial market.We study the announcement effect of convertible bond with64newconvertible bond issues in china from January1，2000, to December31,2011. Wechoose the day when the convertible bond prospectus published as the event day. Theevidence suggests that the firms experience positive abnormal return around thepublishing of convertible bond prospectus, and a significant positive cumulativeabnormal return of1.41%is documented in (-1,1), however, there may be anoverreaction too. A significant positive cumulative abnormal return of5.27%isdocumented thirty trade days before the convertible bond prospectus published. Weseparate the sample into two part, one part includes the convertible bond issued beforethe reform of non-tradable shares, the other includes the convertible bond issued atferthe reform of non-tradable shares, most of the abnormal return comes from theconvertible bond issues atfer the reform of non-tradable shares, and there is not asignificant abnormal return before the reform of non-tradable shares.We also study the long-term perform of the ifrms atfer the convertible bondissues, the evidence suggests that the ifrms which issued convertible bond before the’reform of non-tradable shares dont have a significant outperform, however, the ifrmswhich issued convertible bond atfer the reform of non-tradable shares have asigniifcant positive cumulative abnormal return between the ifrst month to the fourthmonth, a significant negative cumulative abnormal return between the iftfh month totwenty-eight month, and a significant positive cumulative abnormal return betweenthe twenty-ninth month to thirty-six month.We choose the (-1,0) and (-1,1) cumulative abnormal return as the dependent,and we choose17independents, which reflect the feature of convertible bond, the feature of the issue firms, and the condition of the market. We make the regressionwith the backward method, the evidence suggests that the abnormal return has anegative correlation with the initial conversion premium rate, the dilution of tradableshares, the ratio of the largest shareholder holding shares. The abnormal return has apositive correlation with the factor which reflects the shareholder’s profitability. Andit also suggests that the will make more abnormal return if the convertible bond issuein the bullish market.