A Study On The Stock Price Effect And Its Influencing Factors Of Company Convertible Bond Redemption

Convertible bond is a hybrid security with options converting the bond to stock,redempting, and conversion price adjustment right. It is a different investment productand finance instrument from stock and bond respectively to investors and issuers. Inrecent years, as the convertible bond market developing rapidly and its financing sizeincreasing, it has gradually been taken into consideration when investors makinginvestment decisions. The redemption provision of convertible bond is an important partof its provision design. Exploring the stock price effect of convertible bond redemptionand its influencing factors are helpful to investors and issuers deepen the understandingon convertible bond. It provides reference to investors developing investment strategiesas well as to listed company making financing strategies.This paper puts forward the research objects after reviewing the existing literaturesfirstly, and then analyzes the theory of the short-term stock price effect and long-termstock price effect of convertible bond redemption. It selects listed companies whichcalled convertible bonds from2004to2010in Shanghai and Shenzhen stock exchangemarket as research samples and uses event study method to test whether convertiblebond redemption has short-term stock price effect, and constructs regression models toanalyze its influencing factors; Finally, it discusses the long-term stock price effect ofconvertible bond redemption, and analyzes its influencing factors of convertible bondredemption.The empirical results show that, compared to benchmark return rate, the underlyingstocks’ performance is significantly weak after companies issue convertible bondredemption announcement, which shows convertible bond’s redemption has short-termshare price effect and it is mainly affected by the redemption notice period, companyscale, company growth and financial leverage. Meanwhile, the CAARs of samplecompanies are significantly negative after convertible bond redemption12,24,36and48months, which shows that convertible bond redemption has long-term stock priceeffect. In addition, convertible bond redemption long-term stock price effect is mainlyaffected by investor holding costs and companies’ financial leverage.