Effect Of Equity Market Timing On Capital Structure Of Chinese Listed Companies

With the development of modern capital structure theory, many western scholars began to relax the Neo-classical assumption of M-M theorem gradually, and modify the application scope of"irrelevancy"proposition, which produce a lot of new capital structure theories, such as tradeoff theory, agency theory, and the pecking order theory. With the enrichment of modern corporate finance theory, market timing theory of capital structure is developed and tested in Baker and Wurgler (2002). Their research result document that market timing affects capital structure in the short run, but also the effects on capital structure are very persistent, so they suggest that capital structure is the cumulative outcome of past attempts to time the equity market. After that, western scholars pay much attention to this new theory. Now, it is become a very important field of behavioral corporate finance, which is under the condition of capital market non-efficiency, effect of capital mispring on financing decision and capital structure.In Transition Economies, China stock market is launched by the government, which has different characters with developed country. To the market, ownership structure is divided by policy, with result in two pricing systems. Nonmarketable shares are priced by net assets per share, and marketable shares are priced by market price. As the small scope of marketable shares and its unbalance supply and demand, the price of marketable shares is high evaluated, which is much higher than net assets per share. So market timing exists theoretically. To the investor, the psychology is not mature enough, such as overconfidence, overreaction, which result in the abnormal fluctuates of the stock price. To the policy, market timing is restricted by the refinancing policy from the government. So that, the effect of market condition on corporate financing depends on market price and policy.Based on the market timing theory of capital structure, this paper analyzes the reality of over evaluated stock price in China, the different pricing systems under duality structure of stock ownership and the market financing condition under the refinancing policy. With the fact to test empirically information of China listed company's capital structure, the research further studies the effect of equity market timing on capital structure of Chinese listed companies. The paper not only enriches the relative researches of the financing and capital structure, but also deeply discusses the restrictive effects of the refinancing policy to equity financing and the difference of the induced capital structure. The empirical results of research increase the experience of the supervise department to enhance the financing behavior of listed companies and the effect of resource allocation for the stock market.