Convertible Bond Financing Motivation For China Listed Companies And Its Effect Analysis

Convertible bond is a type of financial derivative mixed by general bond and thecall potion of stocks. It endows bondholders with the right that within a certain periodof time, they can transform the convertible bond into the company’s common stocksaccording to legal procedures and the conversion price committed by issuers. Comparedwith the traditional bonds and stocks, it has more attraction. In recent years, China’smarket of convertible bond is developing rapidly, and convertible bond has become oneof the important refunding tools of Chinese listed companies. However, relative to thematurity of the overseas market of convertible bond, Chinese market has only gotseveral decades’ development, there are many aspects to be improved both in the depthand width of the research, and there are still some blindness in the listed companies’useof convertible bond financing. Therefore, by means of combining theories withdemonstration, from the view of back equity, this thesis aims at studying the agentsand effects of Chinese listed companies’ issuing convertible bonds so as to help listedcompanies make better use of convertible bond to promote their development and offersome accordance to Chinese bond divisions to standardize the issuing of Chineseconvertible bonds. Thus, it will promote the development of the market.After the overview of the basic theory of convertible bond, by introducing majorpoints and research model of back equity, this thesis finds out the agent of listedcompanies’ use of convertible bond financing is to obtain the deferred equity.Afterwards, from the aspects of information asymmetry and financial risks, the thesisfinds out: when there is information asymmetry outside the company, investor’attraction to stocks will reduce greatly, which will lead to the increasing cost of equityfinancing; when there is financial distress inside the company, to issue common bondswill increase enterprises’ pressure to repay capital and interest, which will finallyincrease the cost of debt financing. At that time, in order to obtain deferred equity, listedcompanies will choose convertible bond to avoid the two types of cost above. At thesame time, based on the financing purpose of getting back equity, listed companies’attitude towards promoting the smooth share transfer will influence enterprise’sperformance. That is to say, in order to transfer convertible bonds successfully atmaturity, enterprise’s management level will conduct effective resource allocation andchoose industries with better growth to expand business so as to achieve betterperformance. At that time, listed companies will deliver the signal which is quite confident in the enterprise’s future stock price through their performance to investors soas to promote them to carry out their right of share transfer. Soon afterwards, byconstructing multiple regression equation, the thesis studies the listed companies’ agentof using convertible bond financing. The result shows that asset-liability ratio andprice/book value ratio is in negative correlation, and growth rate of major operationrevenue and the issuing scale is in a positive correlation. What’s more, by factoranalysis, the thesis gets the overall merit function of listed companies before and aftertheir issuing convertible bonds, and works out respective scores. By comparing theirscores, it is found that the performance after issuing convertible bonds is slightlysuperior to that before issuing.Based on theoretical analysis and empirical research, major findings of the thesisare:(1) if listed companies are face with information asymmetry and financial distresssimultaneously, the choice of any single financing method will assume high financingcost. At this time, in order to obtain deferred equity, enterprises partial to equityfinancing will choose convertible bonds to avoid these two types of cost;(2) listedcompanies will deliver the signal which is quite confident in the enterprise’s futurestock price through their performance to investors so as to promote them to carry outtheir right of share transfer. And in this way, it will further lead to its better effect afterits use of convertible bond financing.