A Summary of Literature: Convertible Bond Issue Announcement Effect

Likun Zhang

doi:10.4236/ajibm.2016.62007

Abstract

Convertible bond, whose holder has the right to convert it into shares in accordance with the agreed terms of the bond within a certain period, combines the common features of the bond and stock. Announcement effect of the securities, also known as wealth effect of the shareholder, is to investigate the influence of the major issuers on the company’s stock price. Because the nature of financial instruments is different, there are differences in issued announcement effect. Scholars’ study of the convertible bond from various countries also involves many aspects. The article gives the literature review on the issue of announcement effect and its influencing factors of target stocks. On the basis of summarizing the conclusions, this article also points out the studies’ shortcomings and deficiencies. We hope to be able to provide some inspiration for the development of the convertible bond market.

Highlights

Convertible bond is a special bond and a way of financing that owns both the qualities of bonds and stocks
The short-term market performance of convertible bonds refers to the direction and degree of influence that convertible bond issued announcement has on the stock price of listed company, called announcement effect
Studies on convertible bond announcement effect include theoretical studies and empirical studies which this paper focuses on the latter

Summary

Introduction

Convertible bond is a special bond and a way of financing that owns both the qualities of bonds and stocks. Since the first issue of convertible bond in the year of 1843, convertible bond has become one of the most important financial ways in capital market. For those listed companies which plan further financing, the largest. The issue of convertible bonds will ease profit dilution which is caused by the over-quick expansion of capital stocks. Since the conversion period of convertible bonds in quite long and capital stocks will increase gradually, the profits of each share and net assets will be diluted step by step [4]. Called shareholder asset effect, mainly checks the influence of the issue of bonds to the price of company stocks. 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

Theoretical Basis about Convertible Bonds and Announcement Effect

Studies from Abroad

Studies in China

Conclusions