The Behavior Finance Analysis About The Equity Financing Preference Of Chinese Listed Corporations

This paper attempts to analyze equity financing preference of Chinese listed corporations. Corporate financing is one of the most important decisions among corporate decisions, and it is also one of the most difficult studies to get clear understanding of factors influencing corporate financing decision. Since MM theorem which is cornerstone of corporate finance emerged in 1958, the radical breakthrough has been achieved in corporate finance. And then the theory of corporate finance has become a focus in economic studies. Many important achievements in corporate finance have been acquired since 1958. One of the most important achievements is a research on corporate financing order by Stewart Myers in 1984, which is pecking order theory.According to Myers's pecking order theory, external fund is corporations' first choice in corporate financing, debt financing is the second, and equity financing is the last. Pecking order theory, is supported by corporate financing practice in developed countries. But when we observe and study financing practice in Chinese listed corporations, the result turns out contrary to that of developed countries. In Chinese listed corporations, Equity financing is put in the first place, and debt financing is seldom adopted. Equity financing preference emerges in Chinese listed corporate financing. It is a challenge to western financing theory. Worse of all, equity financing preference has harmful effects on the growth of Chinese listed corporations. It's urgent to solve this problem theoretically and practically.Many scholars have presented different explanations for this question and they generally ascribed this phenomenon to the lower cost of equity financing. However, the author think capital cost cannot well explain this phenomenon. Corporations'lower cost means the investors'lower income, thus the corporations' equity financing preference cannot lasted long. Since Traditional financing theory cannot well explain this phenomenon, this paper attempts to use the behavior finance to analyze Chinese listed corporations equity financing preference. Major difference between the financing theory of the behavior and traditional financing theory is the introduction of " irrational factors " whose research follows two basically theoretical frameworks. Firstly, the irrational framework of the market; Secondly, manager's irrational quity financing preference. This paper makes some researches under these two frameworks from theoretical and empirical pionts of view.This paper uses a model based on Myers's modal, which increased noise trader. The paper also uses a model based on herd behavioral model. With the analysis based on behavior finance, this paper attempts to explain the Chinese corporations'equity financing preference and make recommendations.