Does the market accept the perpetual bonds issued by commercial banks? Evidence from China

ABSTRACT

Despite the prevalence of the research on the issuance of perpetual bonds by non-financial enterprises, Chinese commercial banks only started using perpetual bonds for financing in 2019. Taking the first bank perpetual bond issued by the Bank of China (BOC) as an example, this study analyzes the economic consequences of commercial banks issuing perpetual bond financing using the event study method. Specifically, it analyzes the change in the excess return rate before and after the event and impact of the information disclosure behaviour of BOC’s perpetual bond financing on stock prices to determine the capital market reaction before and after the issue. The issuance of perpetual bonds had a short-term negative effect on stock prices but, overall, investors hold a positive attitude towards the perpetual bonds issued by the BOC, which may be related to the choice of market time for the issuance.

KEYWORDS:

• Commercial banks
• event study
• market timing
• perpetual bonds

JEL CLASSIFICATION:

• G14
• G21
• G23
• G29

Disclosure statement

No potential conflicts of interest are reported by the authors.

Additional information

Funding

This work was supported by the Jiangsu Province Social Science Application Research Project [19SCC-025] and the General Project of Philosophy and Social Science in Universities of Jiangsu Province [2019SJA115].