The impact of firms’convertible bond issues on their stock prices-The evidence from Taiwanese companies listed on TSE and OTC
Date Issued
2004
Date
2004
Author(s)
Tsai, Yang-Wei
DOI
zh-TW
Abstract
This paper examines the impact of Convertible Bond (CB) announcements made by Taiwanese public- listed companies on their stock prices for the period from January 1, 2001 to April 30, 2004. This paper simultaneously tests the impact of issuer attribute, Electronics and Non-electronics, listing on OTC and TSE and issuing under new and old underwriting rules. This study uses Market Model Method to estimate the expected return rate for sample companies. Also, it uses the Standardized- Residual Cross-Sectional Method to calculate the cumulative abnormal return occurred during the period 20 days ahead and behind the announcement dates. The evidence and analysis show the following findings:
1.The Standardized Cumulative Abnormal Return (SCAR) turned from positive into negative since 7 days before the date of Board of Directors meeting basing on the data collected from sample companies. This evidence suggests that the related information have revealed before the B.O.D. meeting date which resulted in a in –advanced negative response to the information. The evidence also shows a significant negative SCAR after the BOD meeting date, which is around the period of filing for issuance.
2.The responses are insignificant from companies either listed on OTC or TSE. This evidence suggests that the co-relation between the impact of the announcements on the stock price and the size of issue companies is rather small. Although the evidence shows that the TSE-listed companies, SCARs are positive before the BOD meeting date while the SCARs of OTC-listed companies are negative. However, the SCARs after the BOD meeting date are negative for both TSE-listed and OTC-listed companies.
3.The attribute of company contributes different responses: the evidence shows an insignificant response by companies within Electronics industries, while a significant negative SCAR occurred for Non-Electronics companies. The different volumes of transaction and turnover rates between companies within Electronics and Non-electronics industries might lead to different results. The stock prices of Electronics companies with high turnover rates are less influenced by the CB issuance. While the stock prices of Non-electronics companies with less transaction volumes have insignificant response before the announcements by BOD meeting. The significant response occurred only after the BOD meeting, the formal announcement of the issuance, which suggests that the investors of Non-electronics companies do not pay attention as close as those of Electronics Companies.
4.New underwriting rule contributes positive effect to the response. The evidence shows that the SCARs for the issuances under new rule are positive. This suggests that the overall investors have positive expectation about the new rule and react to it positively. However, the ordinary individual investors are not familiar with the new rule, which causes the positive response is not significant until a short period before the filing date and a few days after the approval of the issuance.
In the last, this study offers different suggestions to issuing companies, regulator, investors and follow-up researchers, respectively. The author hopes those suggestions will be helpful for those who are making the related decisions or doing the related researches.
Subjects
可轉換公司債
事件研究法
市場模式法
異常報酬
Convertible Bond
Event Study
Abnormal Return
Type
thesis
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