On Equity Financing Bias Of Chinese Listed Corporations

Corporate financing is the oldest and the most important decisions amongcorporate decisions. It's one of the most difficult studies to get clear understanding offactors influencing corporate financing decision. Since MM theorem which iscornerstone of corporate finance emerged in 1958, the radical breakthrough has beenachieved in corporate finance. And then the theory of corporate finance has become afocus in economic studies. Many important achievements in corporate finance havebeen acquired since 1958. One of the most important achievements is a research oncorporate financing order by Stewart Myers in 1984, which is pecking order theory.According to this theory, external fund is given the first priority in corporate financing,debt financing is the second, and equity financing is the last. This theory is supportedby corporate financing practice in developed countries. But when we observe and study financing practice in Chinese listed corporations,the result turns out contrary to that of developed countries. In Chinese listedcorporations, Equity financing is put in the first place, and debt financing is seldomadopted. Equity financing bias emerges in Chinese listed corporate financing. Thisfinancing practice is contrary to western mainstream financing theory. It is a challengeto western financing theory. Worse of all, equity financing bias has harmful effects onthe growth of Chinese listed corporations. It's urgent to solve this problemtheoretically and practically. Why the financing order in Chinese listed corporations is contrary to the westerntheory? How to explain this phenomenon? We must answer why corporate financingtheory meets a challenge in Chinese listed corporations theoretically. What canaccount for this discrepancy between financial structure of Chinese listed corporationsand that of corporations in developed countries? It is urgent to analyze the variance offinancing decision in Chinese listed corporations and put forward policy suggestions.So, based on characteristics of Chinese transitional economy in this dissertation, weuse corporate financing theory, institution economics, political economy and theory ofindustrial organization and seek the reasons why equity financing bias emerges inChinese listed corporations from four perspectives. IIIFirst, we explore the reason why Chinese listed corporations have equity financingbias from control rights perspective including large shareholders'control rights andmanager's control rights. From large shareholders perspective, equity financing isgiven the first priority in corporate financing by Chinese listed corporations becauseof abnormal equity structure. Abnormal equity structure means too high proportion ofstate-owned share in Chinese listed corporations, the shareholder of state-owned sharebecome an absolutely controlling shareholder. Because state-owned share cannot dealin stock exchange, the shareholder of state-owned share can grab circulating rightpremium or rents by share placement, secondary equity offering. Therefore equityfinancing is adopted rationally by large shareholders. The financial structure ofChinese listed corporations is chosen by manager from the perspective of manager.Because the private benefit of control is most important benefit of manager, managerwould maximize his tenure, which is avoiding corporate bankruptcy and preventingcontrol contests. Because control market is out of order in China, avoiding corporatebankruptcy becomes manager's exclusive objective. In order to avoid corporatebankruptcy, manager must put equity financing in the first place. Therefore thoughlarge shareholder's motivation is different from manager's, their choices is the samein actual constrain conditions. They all choose equity financing. Second, we analyze another reason why equity financing is given priority inChinese listed corporations from the perspective of fund supply. Now that equityfinancing bias c...