Empirical Study on Motivation of Issuing Convertible Bond From The Angle of Private Benefits of Control Rights in China(2006年公共管理国际会议论文).docVIP

An Empirical Study on Motivation of Issuing Convertible Bond From The Angle of Private Benefits of Control Rights in China 1. XIE Gang 2. WAN Di-fang 3.LV Zhen-yu School of Management , Xian Jiaotong University, Xi’an, P.R.China, 710049 Abstract The former studies explained the motivation of issuing convertible bond (CB) from the point of view on cash flow rights. In China, highly concentrated share structure induces vast private benefits of control rights. This paper studies the abnormal return of CB on the first exchange day and the affective factors on it from the angle of private benefits of control rights. It provides some significant proofs, which approve the reform on dualistic share structures and lay a foundation for forward study of CB on the efficacy and mechanism to dynamically adjust the interest of shareholders as an especial financial tool (option embedded) between equity and debt. Key words Private Benefits of Control Rights, Convertible Bond, Issuing Motivation 1 Introduction Convertible bond (CB) is a security that offers bondholders the right to convert the holding CB to the underlying stock of the issuer under certain conditions rather than by direct purchase in the market. The terms of exchange are set forth in the bond indenture. The option to convert is solely at the bondholder’s discretion and exercised when and if the bondholder finds a desirable conversion. In Chinese capital market, CB is a financing method widely used same as seasoned offering and rights offer. In the three years before 2005 when stock market reform began, CB was warmly welcomed by a lot of listed firms which stired a tidy of issuing CB in capital market in China, which arouse the prevalent attention of managers and scholars. But CB issued by Chinese listed firms has the obvious abnormal return on the first exchange day. Listed firms make the serious internal undervaluation through extremely favorable terms designed for investors, so impair basic interest of all shar