The Reputation or Arbitrage？A Study of Euro-Convertible Bond

• Main Authors: CHEN YI-JU, 陳儀儒
• Other Authors: 許培基
• Format: Others
• Language: zh-TW
• Published: 2004
• Online Access: http://ndltd.ncl.edu.tw/handle/53591417633052839607

碩士 === 輔仁大學 === 管理學研究所 === 93 === Using 239 convertible issuing firms (CB) and 150 euro-convertible bond issuing firms (ECB) in Taiwan in the 1989-2003 sampling period, this study explores the possible explanations to the surge of ECB issuances in the recent years. The reputation hypothesis indicates that the ECB issuing firms would benefit from the signal bandwagon and earn higher abnormal returns than the CB issuing firms. The empirical results show that the ECB issuing firms have lower financial performance measures while earn higher abnormal returns in the event window than the CB issuing firms, which corroborates with the reputation effect. Alternatively, the arbitrage hypothesis implies that company insiders or large shareholders might take advantage of the amendment of Taiwanese Corporate Law in 2001 that shortens the time lag for converting bonds into stocks. Our empirical results also lend support to this hypothesis and show that the arbitrage strategies proximating insider’ trading are more profitable after than before the law amendment.