Equity Refinancing Behavior And Efficiency Analysis Of China's Listed Companies With The Split Share Structure

There are two abnormities on the refinancing of China's listed companies: first, the firms do not follow the classical pecking order theory, but have prejudice on the equity refinancing; second, the equity refinancing efficiency of the firms is low. The abnormalities have been the focus of the theory and practice. For the existing of split share structure, the classical theories developed in the West can not give a rational interpretation for the abnormalities. The scholars in China do a lot of researches on the equity refinancing during the past ten years, but only a minority of the scholars consider the factor of the split share structure. And the researches do not give concrete theoretic and empirical studies on the direct relationship between the refinancing efficiencies and the split share structure. The paper will give a systematic research on the equity refinancing behavior and efficiency with the split share structure. The paper uses methods of theoretic analysis and statistical analysis to verify the equity refinancing prejudice of China's listed companies. We construct a model on the equity refinancing. The model shows that there exists wealth transfer of tradable shareholders to non-tradable shareholders during rights issue and seasoned equity offering in China, therefore the non-tradable shareholders can acquire riskless high abnormal returns quickly (the book value per share increases). In addition, the managers can obtain positive utility through rights issue and seasoned equity offering. Therefore, the controllers have prejudice on the equity refinancing since the firms are usually controlled by the managers or the non-tradable shareholders. And they issue convertible bonds when there have good investment opportunities. Furthermore the statistical results on the samples in 2001 find that the firms have prejudice on the equity refinancing, and it is uncorrelated with the market condition. The paper uses methods of theoretic analysis and empirical analysis to verify the low equity refinancing efficiency of China's listed companies. We construct a model on the equity refinancing, and the model shows that: first, the firm will get negative abnormal returns on the announcement of rights issue and seasoned equity offering, and the abnormal returns are negatively related to the ratio of non-tradable shares to total shares before announcement for the wealth transfer of tradable shareholders to non-tradable shareholders; second, the long-term financial performance of rights issue and seasoned equity offering is low because the behaviors of equity refinancing is due to the utility increasing of non-tradable shareholders and the managers rather than the good investment opportunities. The short-term market performance and long-term financial performance of convertible bond is unclear. In addition, the empirical results find that: the short-term market performance of rights issue and seasoned equity offering is low, and is inversely to the ratio of non-tradable shares to total shares before announcement; the long-term financial performance of rights issue and seasoned equity offering is low too; the short-term market performance of convertible bond is unclear. The paper gives a comparative analysis on the short-term market performance among the rights issue, seasoned equity offering and convertible bond. The comparative results show that: the short-term market performance of convertible bond is better than that of rights issue, the short-term market performance of rights issue is better than that of seasoned equity offering, and they are both statistically significant at the 10% level. In addition, the paper gives a comparative analysis on the long-term performance between the rights issue and seasoned equity offering. The comparative results show that the long-term performance of rights issue is better than that of seasoned equity offering in the 1st, 2ed and 3rd year after announcement, and the performance in the 2ed year is statistically significant at the 1% level.