The Financing Behavior Of Listed Company's Capital Cost Sensitive Research

The ultimate goal of corporate finance is the maximization of shareholder wealth. Thecompany’s financial policy is a specific course of action for practicing the company’sfinancial goals. As an integral of the company’s finance, financing behavior often affectsthe company’s investment decision-making by the scale and ways of financing and thefuture cost of capital, and has effect on the realization degree of shareholder wealth. Largeamounts of capital can guarantee business investment proceed smoothly at the beginning ofoperating activities; it is obvious reasonable capital structure can reduce and evadefinancing risk. Under the current conditions of market, the capital scale has become one ofessential conditions that enterprises keeps competition power. A right capital scale canimprove company’s operating efficiency, and enhance the competitiveness among theindustries. The financing behavior determines not only the attribution of company controlpower also the distribution order and quantity of earnings. According to the modern capitalstructure theory, the optimal capital structure is obtained from the lowest weighted averagecost of capital. The cost of capital is the first factor to consider to the corporate financing.With the increase of the amount of the capital the marginal cost of capital is increasing; thecompany can reduce the total cost of corporate financing and make reasonable financingbehavior if it made financing decisions based on the cost of capital.Judging whether financing behavior is sensitive to the cost of capital, this articlemeasures whether the financing behavior is conducive to increase the companyshareholders wealth or not. The financing theory proposed that the shareholders’ wealth inthe company where the financing behavior is sensitive to the company’s cost of capital ishigher than the non-sensitive company; in this company, the shareholders’ wealth morechanges faster with the changes of the corporate finance behavior. In view of these, thearticle analyzed from the perspective of industry the difference about financing behavior ofdifferent industries and the cost of capital and in inter-industry with the Kruskal-Wallis testusing2002-2011annual data of the listed companies in China, and found that thefluctuation ratios of the financing size among the industries does not have significantdifferences, but the choice of financing ways and the cost of capital were different amongthe industries; the financing scale and financing ways changed in inter-industry, but thecost of capital was relatively similar. Then, the article has a correlation test between thefinancing behavior of different industries and their cost of capital and found financing scalechanged with cost of capital changed among different industries, the choice of most of theindustry on debt financing way related to the changed with the cost of debt capital and that the listed companies choiced equity financing was irrelevant to the equity cost of capital.Furthermore, the empirical analysis between the industry financing behavior andshareholder wealth suggested the sensitive classes industries ROE was generally higherthan the non-sensitive sectors; the shareholder wealth declined faster in sensitive classindustry than in non-sensitive sectors when the scale of financing increased; with theincreasing in liabilities, the growth rate of the sensitive class industry shareholder wealthwas faster than that of the non-sensitive industry. At last, we proposed a number ofrecommendations to improve the sensitivity between the capital cost and corporatefinancing behavior and some further outlook on future research directions.