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Empirical Research on the Shareholder Wealth Effect of Issuing Bond with Warrants by Listed Companies

Author: YaoZhiDan
Tutor: ZhangWeiDong
School: Jiangxi University of Finance
Course: Accounting
Keywords: Bond With Warrants Convertible bonds Shareholder wealth effects
CLC: F830.91
Type: Master's thesis
Year: 2009
Downloads: 94
Quote: 0
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Abstract


Bond With Warrants is accompanied by warrants, the holder legally entitled to subscribe for shares with the agreed price within a certain period, that is, bonds with warrants product portfolio. It has the typical nature of stocks and bonds and it is another innovative financial products followed the convertible bonds. Bond With Warrants can lower financing costs, broaden financing channels, provide long-term low-interest financing due to its structure feature of once issue twice finance. However, in structure, survival period, the right of way line and so on, it has some differences with the convertible bonds. As the novelty of Bond With Warrants, at present, the domestic research in this area has just started, mainly stay in its terms of issue, market returns and market risk research. Therefore, this innovative product will be compared with ordinary convertible bonds in the paper, so that everyone will have a more comprehensive and in-depth understanding about the Bond With Warrants. At the same time, the the relationship of Bond With Warrants and the shareholder wealth effect was analyzed, so we can have deep understanding of this new product features, therefore, it will help regulators to develop regulatory policies better, and investors to make investment decisions scientificlly, and to provide a theoretical basis of the decision-making for listed companies.In this paper, theoretical analysis and empirical analysis demonstrated that Bond With Warrants have a positive shareholder wealth effects, but also further demonstrated. that shareholder wealth effects of Bond With Warrants is better than the that of convertible bonds. Through theoretical analysis shows that: Bond With Warrants has its unique characteristics of the financing--once Issue, secondary finance, thereby financing costs reduced and financing cash flow increased; second, issuing Bond With Warrants can reduce agency costs, optimize the capital structure; the three, because the term of issue of Bond With Warrants is more strict than that of convertible bonds, the companies which issued Bond With Warrants have a stronger pay rate capability and can better protect the interests of investors. Finally, issuing Bond With Warrants sends positive signal to the market and show the company a positive effect. Through empirical analysis found that: first, taking the listed companies as the study sample, the companies issued Bond With Warrants during the period from the beginning of 2006 to the end of 2008, in the event window [-20,+5], there are excess rate of return from -5 to +2 days, in the +3 cumulative excess returns significantly, reached 8.67%. This shows that China’s stock market has been very positive on the issuing of Bond With Warrants, the majority of investors to issue Bond With Warrants hold a good attitude, and actively participate in investment; Second, shareholders wealth effect of Bond With Warrants should be significantly better than convertible bonds, at 10% level to reach significant level. Regression analysis showed that the better shareholder wealth effects are related to a positive correlation with firm size and a negative correlation with asset-liability ratio.The paper’s structural framework as follows:Part I: An overview of the research background and significance of this article, introduces the idea of writing this article, the approach to the study, as well as the basic framework of the article.Part II: An overview of domestic and foreign scholars’research on the Bond With Warrants.Part III: Compare the description of convertible bonds and Bond With Warrants, analyze the reasons of China’s listed companies choose to issue and investors choose to invest in Bond With Warrants; based on financing characteristics of Bond With Warrants, agency cost and terms of issue, study the shareholder wealth effects caused by Bond With Warrants, and then proposed the hypothesis.Part IV: This part of the empirical analysis, using selected indicators of the sample and design variables to build models, do single variable analysis and multivariate regression analysis, and make an analysis of the empirical results.Part V: Combination of the result of preceding theoretical analysis and empirical analysis than put forward relevant proposals and shortcomings of this research.

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CLC: > Economic > Fiscal, monetary > Finance, banking > Finance, banking theory > Financial market > Securities market
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