Convertible Bonds Research Articles

Empirical Analysis of Convertible Bond Announcement Returns: Focusing on the Culture Contents Industry in Korea

Empirical Analysis of Convertible Bond Announcement Returns: Focusing on the Culture Contents Industry in Korea

Analysis of Financial Fraud Based on the GONE TheoryA Case Study of Hangzhou Century Co., Ltd.

Convertible bonds allow creditors to convert their claims into company shares under certain conditions. Because of this debt-equity conversion feature, the issuance conditions, pricing and conversion value of convertible bonds are highly susceptible to financial information. Increasing the market value of a company's stock by exaggerating earnings or concealing debt may lead to convertible bond investment decisions based on misinformation, which in turn affects investors and the healthy operation of the market. Based on the GONE theory, this paper analyses the motivation of financial fraud in convertible bond documents and proposes corresponding preventive measures for its characteristics. Through the research and analysis of this type of financial forgery, the preventive governance of financial forgery can be further strengthened, which not only helps to protect the company's reputation and ensure the accuracy and reliability of the financial report, but also helps to attract and maintain the trust of investors, avoid possible legal risks and economic losses, and create a transparent and honest financial environment for the market to promote the efficiency of the market and the fair competition of enterprises.

Valuation of convertible bond based on uncertain fractional differential equation

Valuation of convertible bond based on uncertain fractional differential equation

An announcement effect in reverse? Evidence from cash‐settled convertible bonds

AbstractWe analyze the trading activity of underlying shares at the maturity of convertible bonds with cash‐settlement provisions. Our findings indicate that arbitrageurs and option dealers engage in systematic trading that leads to an increase in trading volumes and changes in the level of short interest in the affected underlying equities. We find significantly positive abnormal returns for the affected stocks if convertible bond‐related trading is not contaminated by opposing option‐related flows. This finding supports the notion that arbitrageurs can create a substantial market impact on shares underlying convertible bonds even without any relevant news dissemination.

Analisis Risiko Modal Ventura Syariah di Indonesia

Venture capital as an alternative financing outside credit banking. Investments made in the form of shares or convertible bonds in the long term, and aimed at business partner companies (PPU), venture capital is a collection of capital originating from investors to be managed professionally by a management company and investment in PPU. Funds invested in venture capital are investment funds that have high risk. This research uses a library or literary study approach. Data collection techniques are carried out through reading and taking notes, as well as managing previous research materials. The aim of this research is to determine the potential risks that will occur and the impact of risks on venture capital. Research results show that venture capital often contributes to helping entrepreneurs develop. So it cannot be denied that venture capital is very prone to losses for both parties.

Convertible Bond Pricing in Chinese Transportation Industry : A Comparison Methods Between Binomial Tree model and Black-Scholes Model

Convertible Bond Pricing in Chinese Transportation Industry : A Comparison Methods Between Binomial Tree model and Black-Scholes Model

The impact of refinancing transaction policy adjustment on stock market volatility

This paper investigates the impact of refinancing transaction policy adjustment on the volatility of convertible bond market. Through GARCH model analysis, it is found that the refinancing policy adjustment significantly affects the spillover effect between CSI 300 index and CSI convertible bond index, indicating that the policy adjustment leads to differences in the speed of market reaction to common information and the degree of change in yield, which reflects the market's sensitivity to the policy change as well as the adaptability of market participants. The empirical results show that the convertible bond market has a significant dynamic impact on the stock market during the policy adjustment period, accompanied by the improvement of market efficiency, which supports the hypothesis that the refinancing policy adjustment has a significant impact on the spillover effect between the two markets.

Wockhardt Ltd.: Will the strategic change work?

PurposeWockhardt Ltd. is a global, research-based pharmaceuticals and biotechnology company headquartered in India. The company went through an ambitious period of growth, mainly using acquisitions as its primary inorganic growth strategy until the 2008 financial crisis. This period saw Wockhardt struggling to meet its financial obligations while at the same time confronting legal and regulatory challenges. Post this period, the company executed several strategic changes to its businesses to facilitate a recovery. The case asks students to assess Wockhardt’s strategic response to the crisis and its future success as a pharmaceutical company in an industry marked by intense competition.Design/methodology/approachThe case is based on secondary data sources and publicly available information. The company’s data and its history over the past six decades have been examined. Newspaper articles, journal articles, company annual reports and analyst firm reports have been used to gather information and have been cited accordingly. Financial data have been obtained from the Centre for Monitoring Indian Economy (CMIE) Prowess database.FindingsThe case highlights some interesting findings from Wockhardt’s handling of its financial problems and subsequent recovery process. Key insights come from its multi-pronged strategy to first stabilize and then continue to expand its core pharmaceuticals business by identifying new markets for its products and alternate channels for growth.Originality/valuePrevious cases on Wockhardt have focused on the financial aspects of the crises, particularly the corporate debt restructuring (CDR) process that was undertaken, the challenges of hedging foreign currency risk and the drawbacks of using foreign currency convertible bonds (FCCBs). In this case, we emphasize the unique aspects of Wockhardt’s business strategy, from its initial acquisition-based inorganic growth, its crisis response and management and finally the strategic execution of its recovery and continued expansion.

Convertible bond maturity and debt overhang

We develop a dynamic corporate investment model to investigate the determinants of the optimal maturity structure of convertible bonds and its debt overhang effect. Our model predicts that relative to the issuance of straight bonds, companies opting for short-term (long-term) convertible bonds tend to expedite (delay) their investment activities, thereby alleviating (exacerbating) issues related to underinvestment. This outcome provides a theoretical rationale for the observed trend of decreasing convertible bond maturity, as explained by debt overhang theory. Moreover, contrary to previous findings, a growth company optimally chooses to issue convertibles with shorter maturities when it has fewer valuable growth opportunities. These insights improve our understanding of the interactions between convertible bond maturity and corporate investment.

Initial Recognition of Convertible Bonds in Accordance with IFRS: the Issuer’s Party

Initial Recognition of Convertible Bonds in Accordance with IFRS: the Issuer’s Party

The Association between Issuance of Mezzanine and Firm Value

Some firms issue mezzanine for future growth, while some others abuse it. Using Korean firms during 2015-2018, we examine the association between convertible bonds (CB) bonds with warrants (BW) issuance and firm value. We find that issuing CB (BW) is positively associated with firm value, and for firms growing fast, the positive association is strengthened, consistent with investment expansion theory. For firms with greater ownership by the largest shareholder and affiliated parties, the positive association is attenuated, consistent with the wealth transfer hypothesis. Moreover, when outside directors attend a board meeting to issue CB, it has a positive association with firm value.

리픽싱 전환사채 발행기업의 회계선택에 관한 사례연구 : 전환권 분류를 중심으로

[Purpose] The purpose of this study is to analyze through actual cases how a company’s accounting choices related to the right to convert refixing convertible bonds subsequently affect its financial statements. [Methodology] Among companies that issued convertible bonds with similar conditions at the same time, the entity classifies convertible bonds into derivative liabilities, capital, and derivative liabilities, respectively, subsequently reclassifies them into capital to confirm from a practical point of view how the accounting treatment of convertible bonds affects financial statements. In particular, considering that the refixing clause is linked to the stock price of the issuing companies, we consider whether the stock price movement was similar when selecting the sample companies to show that it is not an unusual case that appears only in extreme samples. [Findings] If the conversion right is classified as equity, changes in the share price and subsequent accounting for the conversion right do not affect the financial statements, but if it is classified as a liability, it can have a material impact on the statement of comprehensive income, and the impact increases with the size of the convertible bond issued and the change in share price. We also found that the accounting choice for the conversion right can be changed at the discretion of the companies, but it is confirmed that related disclosures is very insufficient. [Implications] The case of this study confirm that accounting for items that are not clearly presented in K－IFRS can cause confusion in the capital market if the accounting treatment is not clearly defined by the relevant authorities. It also suggests that political efforts should be made to ensure that the IASB’s discussion process for revising IAS 32 takes into account the situation in Korea.

The Discussion of Convertible Bond Valuation

With the development of financial analysis techniques, computer technology, and artificial intelligence, the valuation methods for convertible bonds in the financial markets are constantly evolving and developing. This article discusses various approaches to valuing convertible bonds, including the Black-Scholes model, the Binomial model, the Monte Carlo model, and artificial intelligence techniques like machine learning. The article provides a detailed overview of each valuation method and analyzes the strengths and weaknesses of each approach.

Two-Factor Convertible Bond Pricing with Pull-to-Par

Two-Factor Convertible Bond Pricing with Pull-to-Par

Exploring determinants impacting foreign direct investment in the real estate sector: a study on the Indian economy

PurposeForeign direct investment in the real estate (FDIRE) sector is required to bridge the gap between investment needed and domestic funds. Further, foreign direct investment is gaining importance because other sources of raising finance such as External Commercial Borrowing and foreign currency convertible bonds have been banned in the Indian real estate sector. Therefore, the objective of the study is to explore the determinants attracting foreign direct investment in real estate and to assess the impact of those variables on foreign direct investments in real estate.Design/methodology/approachJohansen cointegration test, vector error correction model along with variance decomposition and impulse response function are employed to understand the nexus of the relationship between various macroeconomic variables and foreign direct investment in real estate.FindingsThe results indicate that infrastructure, GDP and tourism act as drivers of foreign direct investment in real estate. However, interest rates act as a barrier.Originality/valueThis article aimed at exploring factors attracting FDIRE along with estimating the impact of identified variables on FDI in real estate. Unlike other studies, this study considers FDI in real estate instead of foreign real estate investments.

The lead lag relationship between convertible bonds and stocks: a perspective based on trading mechanism

ABSTRACT Based on minute-level high-frequency data, this paper examines the lead-lag relationship between convertible bonds and the stock market by using the thermal optimal path method. It is found that convertible bonds lead the stock market at both index and individual levels. Regression analysis shows that the unique ‘T + 0’ trading mechanism and wider price limits of convertible bonds significantly contribute to their leading effect. Additional analysis shows that the leading effect is significantly reduced when the price limit of convertible bond market is narrowed. Our findings can potentially help regulators to improve and develop the convertible bond market, and also be of value to investors in developing trading strategies.

Capital Regulation Reforms and Bank Risk-Taking in China

ABSTRACT Bank capital stands at the heart of banking regulation aimed at curbing bank risk-taking. This paper examines the impact of the Chinese version of Basel III capital regulation on bank risk-taking in China, by applying panel regressions to a large sample of Chinese commercial banks. Our findings indicate that more Tier 2 contingent convertible (CoCo) bonds as capital instruments in the capital composition may paradoxically increase, rather than decrease, bank risk-taking. This effect is robust to instrumental variable estimation. A channel analysis reveals that this unintended effect primarily arises from a leverage effect. This is due to the strong debt attributes of Chinese Tier 2 CoCo bonds, leading to lower core capital levels. Conversely, no evidence is found for the franchise value effect as a significant driver. Lastly, we confirm that capital constraints influence banks’ capital adjustments and asset risk allocation aligning with regulatory aims. Our paper has significant policy implications for financial regulation, shedding light on the efficacy of Basel III capital regulation while highlighting the limitations of Tier 2 CoCo bonds as capital instruments in China.

Pricing Chinese Convertible Bonds with Learning-Based Monte Carlo Simulation Model

In this paper, we explore a novel model for pricing Chinese convertible bonds that seamlessly integrates machine learning techniques with traditional models. The least squares Monte Carlo (LSM) method is effective in handling multiple state variables and complex path dependencies through simple regression analysis. In our approach, we incorporate machine learning techniques, specifically support vector regression (SVR) and random forest (RF). By employing Bayesian optimization to fine-tune the random forest, we achieve improved predictive performance. This integration is designed to enhance the precision and predictive capabilities of convertible bond pricing. Through the use of simulated data and real data from the Chinese convertible bond market, the results demonstrate the superiority of our proposed model over the classic LSM, confirming its effectiveness. The development of a pricing model incorporating machine learning techniques proves particularly effective in addressing the complex pricing system of Chinese convertible bonds. Our study contributes to the body of knowledge on convertible bond pricing and further deepens the application of machine learning in the field in an integrated and supportive manner.

전환사채시장의 규제 변천사와 정책적 시사점 : 시가하락 리픽싱 옵션과 제3자 지정 콜옵션을 중심으로

전환사채시장의 규제 변천사와 정책적 시사점 : 시가하락 리픽싱 옵션과 제3자 지정 콜옵션을 중심으로

Intermediary frictions and convertible bond pricing

Buy-and-hedge intermediaries are important investors in the convertible bond market as they intermediate between firms that require capital quickly and investors requiring time to assess the security. Their strategy requires them to manage the trade-offs involved with the costs and benefits of hedging. We find that prices of convertible securities reflect the costs that intermediaries incur when managing their positions. Especially cross-sectional and within-bond variation of intermediaries’ loan costs helps explain variation in convertible bond underpricing.