Stock Market And Firms' Financing And Investment Behavior: Empirical Studies Of Chinese Public Companies

This dissertation addresses two empirical questions. First, to what extent can the three main capital structure theories, trade-off, pecking order and market timing explain the financing behavior of Chinese public companies? Second, does fluctuation in stock price affect firms' real investment especially when changes in price aren't driven by fundamentals?We start by exploring the financing preference of listed companies, which makes up chapter two. Chapter three is an extension of chapter two, focusing on equity market timing behavior by managers. Chapter four examines the interactions between fundamentals, Tobin's Q, net equity issuance and investment. Using impulse-response function and variance decomposition, we try to determine to what extent and by which channel that irrational stock market influences real investment. Chapter five concludes.Our main contributions can be summarized as follows:First, we find that the so called equity financing preference actually doesn't exist. Our analysis shows that previous studies reached such conclusion because (1) they didn't exclude the impact of IPO; (2) they overemphasized the dominant role of outside equity over long-term debt.Second, this paper compares the relative explanatory power of three capital structure theories. We find that in the short term financial deficit and market conditions are important factors affecting leverage dynamics. However, in the long run evolution of capital structure, target leverage plays a more important role, which suggests that in the long term financing behavior of firms is more consistent with the dynamic trade-off model.Third, we find that irrational stock price influences real investment mainly through catering channel, but its impact is rather limited. This finding has an important policy implication. It suggests that central bank should adopt a strategy of benign neglect when facing possible stock market bubbles, since bubbles don't lead to significant investment distortion. By examining the applicability of the major investment and financing theories to Chinese public companies, this dissertation provides clues for further studies, and it also deepens our understanding of the role played by stock market in China economic development.