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Download Citation on ResearchGate | Convertible Bonds as Backdoor Equity Financing | Pigovian taxation of externalities has limited appeal if the tortfeaser. This paper argues that corporations may use convertible bonds as an indirect ( albeit . Backdoor equity financing hypothesis of Stein () receives universal . Thu, 08 Nov GMT convertible bonds as backdoor equity pdf -. Convertible financing. Jeremy C. Stein* bonds as backdoor equity. Massachusetts.

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In this way, conclusions drawn can be persuaded and meaningful. Journal of Business and Management, 6, The study is carried out through the performance of market stock price after the issue of convertible bonds. As a consequence, its converhible is below that of private company bonds.

The mechanism of positive influence that convertible bond has on performance is as follows: At the same time, unlike normal bonds that need to pay huge amount of interest and burden financial crisis that pay for huge debts, they put forward tax deduction effect on the basis of study.

Studies from Abroad Studies from abroad on convertible bonds has a long history and are relatively comprehensive which benefit from the mature capital market in developed capitalist countries [9]. Compared with equity financing, company pays convertible bond investors certain amount of interest, and these shares of interest are the money that must be paid before tax, thus tax of company will be reduced.

This paper mainly involves convertible bond announcement effect and issued motive. Since the first issue of convertible bond in the year ofconvertible bond has become one of the most important financial ways in capital market.

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A Summary of Literature: Convertible Bond Issue Announcement Effect

The Case of All-Equity Firms. At the same time, the issue of convertible bonds will ease profit dilution which is caused by the over-quick expansion of capital stocks. Due to the right of choice, the interest of convertible bonds is lower than that of normal bonds [2]. Then, one of the motives of company to choose convertible bonds is to get lower external financing cost.

Her study shows that the bacodoor concerned factors when issuing convertible bonds include financial risk, development of company, adverse choice cost and relatively high equity concentration, while such factors as tax deduction effect are less considered.

Journal of Financial Economics, 32, Journal of Financial Economics, 15, The cost of convertible bond is obviously lower than that of bank loan as well as the level of cash bonus.

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The contrast derives from different corporate governance. Please enable JavaScript to view the comments powered by Disqus. Pei Zhenzhen makes a comparison about listed companies which issued convertible bonds and public further issue during January, and April, equiyy the basis of theories and hypotheses abroad [34].

Journal of Multinational Financial Management, 10, American Journal of Industrial and Business Management6 Studies in China Studies on the issue of convertible bonds of listed company start late in China, and only a few study fruits can be found. Journal of Multinational Financial Management, 17, Finance and Accounting Monthly, No.

In this way, baxkdoor of managers will be prevented.

Journal of Finance, 61, Journal of Finance, 37, Conclusions Conclusions can be made on the basis of the analysis of literature review of scholars in various countries. Kang and Stulz abnormal return rate of announcement effect is positive which is contrary to European and American countries [18]. Due to the relatively large uncertainty of the announcement effect between stocks and bonds, different announcement effects occur in different countries and during different periods.


In the aspect of the interpret of announcement effect, information asymmetry and financing theory are the two major theories. Studies indicate that the cost of convertible bonds refinancing for listed company in China is significantly lower than that of equity refinancing. Journal of Finance, 57, Mayers put forward continuous financing hypothesis on the basis of the uncertainty of future investment equity value [30].

Research on Economics and Management, No. Journal of Financial Economics, 47, For those listed companies which plan further financing, the largest advantage compared with other ways of financing is its low cost.

Studies on the issue of convertible bonds of listed company start late in China, and only a few study fruits can be found. Therefore, the choice interpretation variable should combine with the actual situation in China. Liu Eping studies convertible bond samples during andand find out that convertible bond announcement has significant negative effect [22]. In this way, agency conflict between shareholders and creditors to a certain extent.

Convertible bonds have the option property that can be converted to stocks in due time, hence, convertible bond shareholders can avoid excessively high expected risk [27].

The Case of Event Studies.

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