전환사채와 기업가치평가에 관한 연구 = A Study on Convertible Bonds and Firm Valuation

다국어 초록 (Multilingual Abstract)

A convertible bond is an inseparable compound-financing instrument with liability and equity components that can be defined separately for valuation purposes, but its ultimate payoff is either as a liability or as equity, not both. Even though Korean GAAP requires the separation of the value of conversion rights from the issuing price of convertible bonds and record as equity, academics as well as accounting practitioners are interested in the nature of convertible bonds and how to account for convertible bonds. This paper examines whether the capital market recognizes convertible bonds as a liability or as equity by analyzing the relation between firms` market value of equity and convertible bonds. As the probabilities that convertible bonds are converted into common stocks, change, the relation between firms` market value of equity and convertible bonds may change. After convertible bonds are issued, conversion probabilities are continuously changed as the stock price changes. Therefore, this study examines how conversion probabilities affect the extent to which the capital market recognizes convertible bonds as equity. Since conversion probabilities depend on the stock price, conversion probabilities are measured by the stock price/conversion price ratios. The empirical model used in this paper is the equity valuation model developed by Ohlson(1995), Feltham and Ohlson(1995). The sample consists of 834 manufacturing firms with the December 31 fiscal year end from 1994 to 2001. The stock price and accounting data are from the database TS 2000 by Korea Listed Companies Association. TS 2000 contains detailed information of convertible bonds, which includes the amount of convertible bonds, conversion price, the date of issuance and expiration date. The results show that convertible bonds are positively related to a firm`s market value of equity, suggesting that convertible bonds are recognized as equity. This study also finds that convertible bonds with high conversion probabilities are more positively related to firm`s market value of equity than those with low conversion probabilities. This result suggests that the conversion probabilities affect positively the degree that investors recognize convertible bonds as equity. The results of this study can be helpful for Korean Accounting Standards Board to make and revise the accounting standards regarding convertible bonds and earnings per share.

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