Abstract: This study investigates the phenomena of issuance price distortion,underlying issuance motives,and minority shareholder protection in China's convertible bond market,and elucidates the intricate interrelationships among these factors. Empirical analysis reveals a pronounced distortion in the primary market: the average first-day excess return upon listing reaches 19.1%,substantially exceeding the approximately 1.1% observed in developed economies. The origin of this distortion is traced to controlling shareholders' propensity to set the conversion price at the regulatory minimum,thereby inflating the embedded call option value of convertible bonds. Consequently,the fair value of these securities significantly exceeds their fixed issuance par value (RMB 100 per unit),effectively amounting to a discounted issuance. The incentives underpinning this arrangement are dual in nature. At the corporate level,convertible bonds serve as a de facto equity financing instrument-evidenced by an eventual conversion rate as high as 95.2%. At the individual level,for controlling shareholders,the mechanism functions as a concealed channel for share divestment and liquidity extraction. Notably,this divestment occurs in an indirect or disguised form: rather than disposing of existing equity holdings in the secondary market-which may be subject to regulatory lock-up constraints or adverse price impacts-controlling shareholders exercise preemptive subscription rights to acquire significant quantities of convertible bonds at par value,proportionate to their shareholdings. Subsequently,they exploit the considerable spread between primary and secondary market prices by liquidating these bonds shortly after listing. In the longer term,when the bonds convert into equity,the controlling shareholders' ownership is diluted,thereby completing the cash-out process. Further evidence indicates that shareholders facing lock-up restrictions and those in privately-owned enterprises exhibit a greater propensity to adopt this strategy. By contrast,minority shareholders-hampered by information asymmetries and limited familiarity with convertible bond mechanisms-frequently fail to exercise their preemptive rights. As a result,their equity is diluted at undervalued conversion prices,yet they derive no compensatory gains from the discounted issuance. This process imposes a net economic loss,estimated at RMB 83.63 million per issuance,on minority shareholders. This loss does not stem from a direct expropriation of minority shareholder rights by controlling shareholders,as typically characterized in the traditional corporate governance literature. Rather,the losses borne by minority shareholders constitute the key factor that attracts external investors to participate in convertible bond offerings. The successful issuance of convertible bonds,in turn,facilitates controlling shareholders in achieving their own objectives-namely,equity financing and the divestment of shareholdings for controlling shareholders. Moreover,the substantial issuance discount incentivizes short-term arbitrage activity,thereby undermining share price stability. Investors seeking preemptive rights engage in concentrated stock purchases following issuance announcements,only to rapidly liquidate positions after the record date. This behavior yields pronounced abnormal return patterns,characterized by “announcement-date surges” followed by “post-record-date reversals.” We put forward policy recommendations in the following four areas:First,raise the lower bound of the conversion price to reduce the discount issuance of convertible bonds. Second,improve the system of preferential allocation for existing shareholders and regulate the self-subscription behavior of controlling shareholders. Third,improve the trading system for convertible bonds and regulate the share-disposal behavior of controlling shareholders. Fourth,strengthen investor education related to convertible bonds in order to protect the rights and interests of minority shareholders.