| Summary: | 碩士 === 國立交通大學 === 管理學院碩士在職專班管理科學組 === 97 === This research mainly discusses the impacts of backdating the conversion price base day of domestically issued corporate convertible bonds. Through observations on timing differences between the conversion price base day, the recordation date, and the bookbuilding date, we inferred that a bond issuer has an opportunity to backdate the conversion price base day to the time when the market share price was lower. This opportunistic behavior plus the existence of asymmetrical information may impact shareholders’ interests. Since 30 Dec 2003, new regulations were imposed that greatly reduced the feasibility of backdating the conversion price base day; hence we took this day as the ex-ante date for our empirical analysis using the market model of event study. We designated the conversion price base day as the event day, observed the cumulative abnormal stock returns and its trends over the event period, and analyzed the impact and implication of backdating conversion prices. The conclusions of our empirical research are as follows:
1. With backdating (140 samples): between 2002~2004, the cumulative abnormal stock returns of corporate convertible bonds with backdating clauses were mostly negative and falling before conversion prices were set, and rising after conversion prices were set. The stock prices were the lowest at 10, 15, or 20 business days before the conversion price base day.
2. Without backdating (170 samples): between 2004~2005, the cumulative abnormal stock returns of corporate convertible bonds without backdating clauses were also mostly negative and falling before conversion prices were set. The conversion prices were set low but not at the lowest among the entire event period. The timing reflected that the bond issuer still has the advantage of asymmetric information over stock prices and business performance, but has no absolute control over the changes in stock prices after conversion prices were set.
3. We have also simulated the pricing of 127 with-backdating samples between 2002~2003 as if their conversion prices were not backdated, and designated the bookbuilding date as the conversion price base day. A comparison between the simulated pricing and the actual pricing revealed that 97 samples between 2002~2003 had simulated pricing without-backdating higher than their actual pricing, the remaining 30 samples had simulated pricing lower than actual pricing; the proportion of over-priced issues was significantly less than the under-priced issues. The simulated pricing was on average 7.2% higher than the actual pricing, which translated into a potential gain of $4,433 million. The research also revealed that among the companies who issued bonds with backdating clauses, few have chosen a higher pricing that reduces the company’s funding costs while most have chosen to date the conversion price base day on days when the stock prices are cheapest, thereby producing unrecognized gains instantly for bond subscribers. The downside of the latter is that at a lower price, more shares need to be issued to raise the same amount of funds.
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