Abstract
This paper empirically explores the relationship between the issuance of bonds with detachable warrants and firm value and the relationship between growth and firm value at the issuance of such bonds. Twelve years of data for 721 issuances of 451 Korean listed firms are analyzed using a panel regression model. We find that at the issuance of bonds with detachable warrants, the change in firm value is strongly correlated with large shareholder ownership concentration and issuance form, and the effect of growth on firm value is strongly correlated with the cash flow condition of the issuing firm. The results indicate that the ownership structure and the cash flow condition of the issuing firm and the form of issuance are important determinants of the relationship between the issuance of bonds with detachable warrants and firm value; these results are applicable to an analysis of the mixed market reactions of convertible bonds or bonds with warrants issues across different countries. They also offer the policy implication that the Korean government’s decision to entirely prohibit firms from issuing bonds with detachable warrants may have been excessive.
Highlights
Convertible bonds (CBs) have been more popular and issued more frequently, bonds with detachable warrants (BWs) became the preferred equity linked financing instrument in Japan and Korea until recently
We find that the effect of growth on firm value at the issuance of detachable BWs is strongly correlated with the cash flow condition of the issuing firm
We find that a change in large shareholder ownership concentration from a warrant exercise affects firm value differently depending on the level of large shareholder ownership and that detachable BW issuance has a positive effect on firm value when it is issued in the form of a public offering
Summary
Convertible bonds (CBs) have been more popular and issued more frequently, bonds with detachable warrants (BWs) became the preferred equity linked financing instrument in Japan and Korea until recently. As the evasive issuances of detachable BWs became widespread in Korea, the Korean government decided to ban their issuance entirely in 2013, resulting in the death of BW issuance markets. Previous empirical studies on the wealth effects of CBs and BWs have looked at abnormal stock returns at the announcements of CB and BW issues, but the results are mixed. S. Kim. Effect of ownership change and growth on firm value at the issuance of bonds
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
