ScholarWorks@숙명여자대학교

초록

Most of convertible bonds(CB) or bonds with warrants(BW) in Korea have the refixing clause which facilitates a decrease of conversion price when stock price is decreased. This leads the embedded conversion rights or warrant to be recognized as derivative liabilities and be subsequently measured at fair value if the ‘fixed to fixed’ condition is applied rigorously. Consequentially, when the increase(decrease) of earnings causes the increase(decrease) of stock price, valuation losses(profits) bring about income smoothing effect. The statistical significance of value relevance of the book value of CB(or BW) or the amount of valuation profits(or losses) of conversion rights has not been investigated. Hybrid contract may be interpreted as neither equity nor liability at securities market and no meaningful evaluation is allowed upon the derivatives valuation profits(or losses) likewise. Valuation profits(or losses) from conversion rights do not significantly modify the future cash flows. And the conversion price is determined initially at the date of issue although it can be decreased in the future when the stock price is decreased. Possible decrease of conversion price may be regarded as adjustment in conversion terms to induce conversion. Therefore, conversion rights may need to be classified as equity to prevent earnings management. CB(or BW) is issued in the form of private placement and is financed mostly by institutional investors who are well known as investment specialists. Accordingly, excessive protection such as refixing clause should be reconsidered. This is why fair investment culture is accomplished by charging the equity risk to the appropriate group.

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