The relationship among firms’ convertible debt financing, capital expenditure timing and investment in Mainland China --Empirical results in Taiwan’s market
Date Issued
2005
Date
2005
Author(s)
Chang, Han-Wei
DOI
en-US
Abstract
This paper examines the relationship between firms’ convertible debt issuing and their subsequent capital expenditures as noted by Korkeamaki and Moore (2004).
We investigate whether the subsequent capital expenditures of Taiwanese firms following their issue of convertible bond are in accordance with the theory of optimal timing proposed by McDonald and Siegel (1986) and Dixit and Pindyck (1994). As an extension to Korkeamaki and Moore (2004), this paper classified sample firms into two groups: China-concept group and non-China-concept group and did the empirical studies respectively. A two-stage Probit Model for Switching Regression proposed by Lee, Maddala and Trost (1980) is used to examine whether China-concept group and non-China-concept group exhibit different behavior on the relationship between firms’ convertible debt issuing and their subsequent capital expenditures.
Our findings support that firms consider their waiting benefits (expected growth) and costs (capital costs) to time their capital investment decisions, and imply firms view convertible bonds as a sequential financing tool proposed by Mayers (1998). In addition, we find the following capital expenditure of non-China-concept firms issuing euro convertible bonds is consistent with the theory of optimal timing, while that of China-concept firms is inconsistent with the theory. That implies maybe the purpose of China-concept firms issuing euro convertible bonds is not for sequential financing needs but for other reasons, such as raising enough funds to invest in Mainland China.
Subjects
可轉換公司債
可轉換公司債發行動機
資本支出
Convertibles
the motives of convertible bond issuance
capital expenditure
Type
thesis