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“Pecking order” of Chinese capital market: Effects of convertible bonds’ issue announcements

Frontiers of Business Research in China volume 1, pages 254–274 (2007)Cite this article

Abstract

This paper empirically shows that the announcements of the issue of convertible bonds (CBs) by Chinese firms have significant negative effects on shareholders’ wealth. We find that when the samples are partitioned by equity component negative market responses towards the announcements of issuing equity-like CBs are more than that of debt-like CBs. This finding is different from the “pecking order hypothesis” of Myers and Majluf (1984). By analyzing the firm characteristics of convertible bond issuers, we find that the wealth effects are negatively related to equity component, firm size and issue size of convertible bonds, and are positively related to financial leverage, liquidity structure of equity, book value of non-liquidity equity and market-to-book ratio. The underlying reason of equity finance taking precedence of bond finance in Chinese capital market can be attributed the to special “two-system-ownership structure” and corporate governance of Chinese listed companies.

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Authors and Affiliations

  1. School of Economics and Management, Beihang University, Beijing, 100083, China

    Han Liyan, Mou Hui & Xie Duo

  2. School of Banking and Finance, The University of New South Wales, Sydney, 2052, Australia

    Chen Zhi’an

Authors
  1. Han Liyan
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  2. Mou Hui
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  3. Xie Duo
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  4. Chen Zhi’an
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Correspondence to Han Liyan.

Additional information

Translated from Guanli Shijie 管理世界 (Management World), 2006, (6): 19–27

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Han, L., Mou, H., Xie, D. et al. “Pecking order” of Chinese capital market: Effects of convertible bonds’ issue announcements. Front. Bus. Res. China 1, 254–274 (2007). https://doi.org/10.1007/s11782-007-0015-y

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