The Study Of Investor Sentiment And Enterprise Cost Of Equity Financing

The cost of equity financing is an important part of the enterprise financing decision,its size is not only directly related to the choice of corporate financing,but also affects the investment decisions of enterprises.Therefore,to explore what factors will affect the cost of equity financing has always been an important research area of corporate financial behavior.Especially in China's capital market,the pecking order theory is out of order,and the enterprises have a strong preference for equity financing.In order to explain this phenomenon,it needs to further analyze the differences in the cost of equity financing between different enterprises and the factors affecting the cost of equity financing.Combing the existing literature,this paper finds that most of the literature is based on the hypothesis that “the market is fully effective” and “rational person” to analyze the factors affecting the cost of equity financing.However,with the abnormal phenomena occurring frequently in the capital market,as well as the financial crisis continues to shorten the cycle and expand the spread,people gradually realized that the reality of the capital market is not completely effective,and investors are irrational.Moreover,a large number of foreign economic facts and theoretical study also found that in reality is not fully effective in the capital market,the irrational behaviors of investor will not only bring huge influence to the stock market,but also affect the enterprise financial decision.In 2015,Chinese stock market has a historical miracle which is the phenomenon of “thousands of shares trading,thousand of shares limit,thousands of shares suspended”,this phenomenon further proves the influence of irrational behaviors of investor on the stock market.However,there are few literatures about how irrational behaviors of investor affect the cost of equity financing.Therefore,in order to break the bottleneck of existing research,it is necessary to base on the behavioral finance theory and relax the hypothesis that "market is fully effective" and "rational person" to analyze the impact of irrational behaviors of investor on the cost of equity financing.In addition,the irrational investors and the irrational managers often exist at the same time,and in order to be closer to the reality of the capital market,it is necessary to incorporate the irrational investors and the irrational managers into the same framework and analyze the impact of both on the cost of equity financing.According to the existing literature,the rise or fall of investor sentiment is an important manifestation of irrational behaviors of investor,and the managerial overconfidence is an important form of irrational behaviors of manager.According to the purpose of this study,the paper choose the A-shares listed companies from 2009 to 2014 as the sample,on the basis of the analysis of the relevant literature at home and abroad,as well as introducing the efficient market theory,the behavioral finance theory and the information asymmetry theory,this paper will study the influence mechanism of investor sentiment on the cost of equity financing from the perspective of rational manager,and analyze the influence mechanism of investor sentiment and manager overconfidence on the cost of equity financing from the perspective of irrational manager.Finally,on the basis of summarizing the theoretical analysis and empirical analysis,this paper puts forward some policy suggestions.Specifically,the main contents and conclusions of this paper are as follows:Firstly,based on the premise of rational managers,this paper analyzes the relationship between investor sentiment and the cost of equity financing.On the basis of constructing an index to measure investor sentiment which eliminates the influence of macroeconomic factors and using the GLS model to estimate the cost of equity financing,the paper through empirical analysis finds that investor sentiment has a significant negative impact on the cost of equity financing,in other words,the stock price is overvalued when the investor sentiment is high,thus promoting the reduction of the cost of equity financing.Secondly,based on the premise of rational managers,this paper analyzes the moderating effect on the relationship between investor sentiment and the cost of equity financing.According to the existing literature,the paper selects three representative factors,such as cash holdings,listed plate and business cycles,to analyze the heterogeneous influence of investor sentiment on the cost of equity financing when the three factors are different.The paper through empirical analysis finds that cash holding,listed plate and economic cycle all have moderating effect on the relationship between investor sentiment and the cost of equity financing.Specifically,the enterprises which have a high level of cash holding,list in the main board,and are in the prosperity stage of the business cycles have lower operating risk and financial risk,therefore,the cost of equity financing has been further reduced when the investor sentiment is high,thus increasing the positive effect of rising investor sentiment on the cost of equity financing to a certain extent.In short,compared with the enterprises which have a low level of cash holding,list in the small and medium-sized board,and are in the recession stage of the business cycles,in the enterprises which have a high level of cash holding,list in the main board,and are in the prosperity stage of the business cycles,investor sentiment has a greater and more significant negative impact on the cost of equity financing.Thirdly,based on the premise of irrational managers,this paper incorporate the irrational investors and the irrational managers into the same framework and analyzes the influence of investor sentiment and managerial overconfidence on the cost of equity financing.The paper through empirical analysis finds that overconfident managers have a strong tendency to over invest and choose radical debt financing,thus improving the enterprise's financial risk,which eventually led to the increased cost of equity financing,namely the managerial overconfidence is positively correlated with the cost of equity financing.And when investor sentiment is high,managerial overconfidence is further strengthened,thus strengthening the relationship between managerial overconfidence and the cost of equity financing,in other woeds,compared with the low investor sentiment,managerial overconfidence has a greater positive impact on the cost of equity financing when the investor sentiment is high.Further analysis find that,due to the influence of managerial overconfidence is higher than investor sentiment,the positive effect of managerial overconfidence on the cost of equity financing can completely offset the negative impact of investor sentiment on the cost of equity financing,so that the cost of equity financing will increase under the joint action of investor sentiment and manager overconfidence.In addition,when investor sentiment is high or low,the contagion effect of investor sentiment on managerial overconfidence is different with the difference of investor sentiment,so that the combined effects of investor sentiment and managerial overconfidence on the cost of equity financing are heterogeneous.Fourthly,this paper puts forward four policy recommendations according to the research conclusion.First of all,it is necessary to improve the education of individual investors and to carry out a full range of training.Secondly,it is necessary to establish and implement the management of the learning mechanism and a variety of incentives.Thirdly,it is necessary to strengthen the cash management and improve the relevant system,and should pay attention to the changes of the external macro environment.Finally,we should improve the supervision mechanism of capital market and the distribution structure of investors.This paper has the following three aspects of innovation:Firstly,from the perspective of behavioral finance theory,this paper studies the factors affecting the cost of equity financing.Most of the existing literatures are from the perspective of traditional financial theory to study the factors which contain the characteristics of the enterprise,industry characteristics and macroeconomic environment affecting the cost of equity financing.But the paper breaks the research paradigm,from the perspective of behavioral finance theory,completely abandoning the hypotheses of complete market efficiency and rational person,it analyzes the factors affecting the cost of equity financing,so as to make up for the defects of the existing research on the influencing factors of the cost of equity financing.Secondly,this paper constructs a research model to analyze the relationship between investor sentiment and the cost of equity financing.On the basis of construct the investor sentiment index and using the GLS model to estimate the cost of equity financing,combined with the research purpose,this paper constructs a research model to analyze the relationship between investor sentiment and the cost of equity financing,thus enriching the content of existing research.Thirdly,this paper systemically reviews the mechanism of investor sentiment impact on the cost of equity financing under the condition of rational managers and irrational managers.Firstly,from the perspective of rational managers,the paper fully studies the mechanism of investor sentiment influence the cost of equity financing,and comprehensively discuss the moderating effect of the factors such as cash holdings,listed plate and business cycles.Secondly,from the perspective of irrational managers,the paper concretely analyzes the relationship between managerial overconfidence and the cost of equity financing and the heterogeneity of the relationship under different investors sentiment,as well as the combined influence of investor sentiment and managerial overconfidence on the cost of equity financing and the heterogeneity of the combined influence under different investors sentiment.