The Announcement Effect of Convertible Bond Calls

• Main Authors: Chia-Chi Lin, 林佳錡
• Other Authors: Ming-Cheng Wu
• Format: Others
• Language: zh-TW
• Published: 2006
• Online Access: http://ndltd.ncl.edu.tw/handle/72164371583183817527

碩士 === 國立彰化師範大學 === 商業教育學系 === 94 === In recent years, issuing convertible bonds is one of the most important ways to collect capital for a corporation, but there were still fewer related researches until now. In addition, both of the issue volume and trade volume of the convertible bonds are increasing year by year. Therefore, this research investigated not only the announcement effect of a convertible bond call on abnormal returns, but also analyzed its causing factors. Although the effect could be thought intuitively, there were still none of researchers investigating it. Thus, this study expected to realize the market reaction and financial characteristics on the announcement of a convertible bond call. The results of this study showed that the abnormal returns on the announcement day are significantly negative, and on the two days after the announcement day are also significantly negative. It indicates convertible bond calls are associated with a significantly negative announcement effect . Furthermore, the result represented the cumulative abnormal returns at the time of the call announcement day, convertible bond calls are associated with a significantly negative announcement effect and a subsequent price recovery in the short term. These findings in Taiwan market consist with the results of Mazzeo and Moore (1992)、Ederington and Goh (2001)、Bechmann (2004). Besides, Around the convertible bond calls, investors selling the new shares issued after the call announcement and short selling are all trade volume. The results of this study showed that the trade volume of underlying stock did not increase largely at the time of the call announcement day. However, this paper found a significant positive relationship between trade volume and the new shares issued after the call announcement. The short selling in connection with the call increased large at the day of the call announcement, and the result indicated a highly significant positive relationship between short selling in connection with the call and the new shares issued. These findings in Taiwan market supports the view points of Bechmann (2004). The results of this study demonstrated that bondholders would hedge their equity risk to exposure by short selling at the time of the announcement of a convertible bond call.