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

Chen-Lung Chin (), Tyrone Lin () and Chia-Chi Lee ()
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Chen-Lung Chin: Department of Accounting, National Chengchi University, No. 64, Sec. 2, Zhi-nan Rd., Wenshan, Taipei, 116, 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

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2005, vol. 08, issue 03, 543-571

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.

Keywords: Convertible bonds; mandatory earnings forecasts; issuance terms; earnings management (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (6)

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DOI: 10.1142/S0219091505000506

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