The information content of convertible bond issuance and the arbitrage risk of the lock-up period

• Main Authors: Hui-chen Lin, 林慧媜
• Other Authors: Chih-hsiang Chang
• Format: Others
• Language: zh-TW
• Published: 2005
• Online Access: http://ndltd.ncl.edu.tw/handle/t39x2k

碩士 === 朝陽科技大學 === 財務金融系碩士班 === 93 === The previous literature about the effect of convertible bonds (CBs) issuance announcement on the common stock price has focused mainly on the characteristics of CBs. Their results reveal that the arbitrage opportunity of CBs exists for the equity market in Taiwan because the market is inefficient. This study fills the void by examining the motivation of arbitrage and hedge that they may cause more short sale and influence stock price reaction, that is, the information content of CBs issuance not only implies earnings prospect and financing decisions of the corporation, but also changes the investor’s behavior of market participants (e.g., institutional investor, individual investor, block investor, and main stockholder). This study applies the event study to explore the announcement effect of CBs and the firms issuing convertible bonds in the open traded and over-the-counter markets were used as sample. Our study differs from previous work in at least three aspects. First, we discuss the implications of abnormal stock returns being discovered after the announcement of CBs issuance by categories of deferment period and trading dollar volume. Second, we investigate if the short sale incentive causes the abnormal stock returns, and if the professional investment institutions execute the strategy of short squeeze during the deferment period. Finally, we analyze if the strength of short squeezes is increasing before the stockholder meeting because of the short covering during the deferment period.