Abstract
Convertible bond (CB) issuers have been required to include financial forecasts in prospectuses filed with the Taiwan Securities and Futures Commission (TSFC) since 1991. This study examines the association between CB issuance terms and the extent of optimistic initial earnings forecasts and earnings management, as well as the association between CB issuance terms and the extent of reported (post-managed) earnings forecasts. Empirical results indicate that: (1) the likelihood of the issuing company making an optimistic initial earnings forecast (positive initial forecast error) increases with conversion price, issuance amount, and issuance period, but decreases with an increasing conversion period and reselling premium; (2) earnings management was pervasive in the year of issue of the CB; and (3) a substitutive relation exists between earnings management and issuance terms in CB issuing.
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