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Convertible Bonds Issuance Terms, Management Forecasts, and Earnings Management: Evidence from Taiwan Market

Author

Listed:
  • Chen-Lung Chin

    (Department of Accounting, National Chengchi University, No. 64, Sec. 2, Zhi-nan Rd., Wenshan, Taipei, 116, Taiwan, ROC)

  • Tyrone T. Lin

    (Department of International Business, National Dong Hwa University, No. 1, Sec. 2, Da Hsueh Rd., Shou-Feng, Hualien, 974, Taiwan, ROC)

  • Chia-Chi Lee

    (Graduate School of Management, National Yunlin University of Science & Technology, No. 123, Sec. 3, University Rd., Douliou, Yunlin, 640, Taiwan, ROC)

Abstract

Convertible bond (CB) issuers have been required to include financial forecasts in prospectuses filed with the Taiwan Securities and Futures Commission (TSFC) since 1991. This study examines the association between CB issuance terms and the extent of optimisticinitialearnings forecasts and earnings management, as well as the association between CB issuance terms and the extent ofreported(post-managed) earnings forecasts. Empirical results indicate that: (1) the likelihood of the issuing company making an optimisticinitialearnings forecast (positiveinitialforecast error) increases with conversion price, issuance amount, and issuance period, but decreases with an increasing conversion period and reselling premium; (2) earnings management was pervasive in the year of issue of the CB; and (3) a substitutive relation exists between earnings management and issuance terms in CB issuing.

Suggested Citation

  • Chen-Lung Chin & Tyrone T. Lin & Chia-Chi Lee, 2005. "Convertible Bonds Issuance Terms, Management Forecasts, and Earnings Management: Evidence from Taiwan Market," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 8(03), pages 543-571.
    • Handle: RePEc:wsi:rpbfmp:v:08:y:2005:i:03:n:s0219091505000506
    DOI: 10.1142/S0219091505000506
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    Citations

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    Cited by:

    1. Ghouma, Hatem, 2017. "How does managerial opportunism affect the cost of debt financing?," Research in International Business and Finance, Elsevier, vol. 39(PA), pages 13-29.
    2. Ghouma, Hatem & Ben-Nasr, Hamdi & Yan, Ruiqian, 2018. "Corporate governance and cost of debt financing: Empirical evidence from Canada," The Quarterly Review of Economics and Finance, Elsevier, vol. 67(C), pages 138-148.
    3. Jia-Wen Liang & Mei-Feng Lin & Chen-Lung Chin, 2012. "Does foreign institutional ownership motivate firms in an emerging market to increase voluntary disclosure? Evidence from Taiwan," Review of Quantitative Finance and Accounting, Springer, vol. 39(1), pages 55-76, July.
    4. Shiyou Li & Emeka Nwaeze & Jennifer Yin, 2016. "Earnings management in the electric utility industry: profit incentives," Review of Quantitative Finance and Accounting, Springer, vol. 46(3), pages 633-660, April.
    5. Liam Gallagher & Mark Hutchinson & John O’Brien, 2018. "Does Convertible Arbitrage Risk Exposure Vary Through Time?," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 21(04), pages 1-25, December.
    6. Ling Tuo & Ji Yu & Yu Zhang, 2020. "How do industry peers influence individual firms’ voluntary disclosure strategies?," Review of Quantitative Finance and Accounting, Springer, vol. 54(3), pages 911-956, April.

    More about this item

    Keywords

    Convertible bonds; mandatory earnings forecasts; issuance terms; earnings management;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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