Effect of ownership change and growth on firm value at the issuance of bonds with detachable warrants

Abstract

This paper empirically explores the relationship between the issuance of bonds with detachable warrants and firm value and the relationship between growth and firm value at the issuance of such bonds. Twelve years of data for 721 issuances of 451 Korean listed firms are analyzed using a panel regression model. We find that at the issuance of bonds with detachable warrants, the change in firm value is strongly correlated with large shareholder ownership concentration and issuance form, and the effect of growth on firm value is strongly correlated with the cash flow condition of the issuing firm. The results indicate that the ownership structure and the cash flow condition of the issuing firm and the form of issuance are important determinants of the relationship between the issuance of bonds with detachable warrants and firm value; these results are applicable to an analysis of the mixed market reactions of convertible bonds or bonds with warrants issues across different countries. They also offer the policy implication that the Korean government’s decision to entirely prohibit firms from issuing bonds with detachable warrants may have been excessive.

Keywords:

• bond with detachable warrants
• firm value
• ownership change
• ownership level
• growth
• private placement

JEL Classification:

• G32
• G13

Additional information

Notes on contributors

Sekyung Oh

Sekyung OH is a Professor of Finance at Konkuk University. His research interests include corporate finance, risk management and capital markets. He has published in Emerging Markets Finance and Trade, Asia-Pacific Journal of Financial Studies, International Review of Economics and Finance, Asia Review of Financial Research, and wrote several books with his colleagues. He had earned his doctoral degree at the Wharton School of University of Pennsylvania and served as a visiting researcher at the Hebrew University and taught at the California State University at San Marcos. He received the Best Paper Award in the pension fund area at the 2014 annual meeting of the joint academic conference of five Korean-American Finance Associations.

Woo Sung Kim

Woo Sung KIM is a Lecturer in Finance at Konkuk University and Hankuk University of Foreign Studies. His current research interests include corporate finance and business ethics. He has published in Asia Review of Financial Research, Korean Academy of International Business. He received his PhD in Finance in 2011.