Study On The Motivation Of Listed Companies To Issue Convertible Bonds-Based On The Property

Convertible bonds have the properties of bonds,stocks and options.To investors,convertible bond is a medium to long-term hybrid financial instrument,which can provide investors with flexible allocation of assets.From the perspective of listed companies,convertible bonds are considered as sweeten debt financing and back-door equity financing.Moreover,the property of options makes the convertible debt can alleviate the agency problem of the company through security designing.So,it has been well welcomed by the listed companies in overseas market.However,China's listed companies do not show the enthusiasm as those theories expected.Only a few listed companies have ever issued convertible bonds during last ten years.On this occasion,why those listed companies issue convertible bonds? This paper tries to study the motivation of these listed companies to issue convertible bonds from the triple properties of convertible.While verifying the applicability of mainstream theories of issuing motivation in China,this paper expects to help listed companies understand and use convertible bonds scientifically.On the basis of theoretical analysis and literature reviewing,this paper firstly studies whether financing cost leads listed companies to issue convertible bonds.By analyzing the composition of the financing cost of convertible bonds,this paper constructs a cash flow model to calculate the financing cost of convertible bonds.The result shows that the financing cost of convertible bonds is much higher than straight bonds.Since the issuance of convertible bonds by listed companies is not due to the financing cost,is it possible for them to use the equity property of convertible bonds to achieve the back-door equity financing? This paper use event study to test the announcement effect of convertible bonds,the result shows that the abnormal returns of stocks are significantly negative on the event day and the day before event day.This suggests that the news of convertible bonds issuance is still seemed bad to the market.Offering equities through convertible bonds issuance cannot help companies avoid the slump of stock price or the companies' market value.Therefore,the backdoor equity financing motivation has not been supported.As the advantage of convertible bonds as debt financing of equity financing cannot be well applied,this paper further examined whether companies using the option property of convertible bonds to mitigate potential agent problem.By building a multivariate regression model,this paper found that the shareholder-creditor and shareholder-management agency cost significantly affect the issuance design of convertible bonds,which shows that the listed company consciously alleviate the two types of agency problem of the company through the design of the convertible bonds.Therefore,compared with debt and equity financing,those listed companies chose to issue convertible bonds because its option property can help realize optimization of risk allocation between the shareholders,creditors and management and ease the agency problems.The results further supplement the development of convertible bonds issuance motivation theory in China.At the same time,the results also help companies to set up a correct understanding of convertible bonds.In the end,this paper provides the enlightenment and suggestions for authorities to guide the healthy development of convertible bonds market.