China's Private Listed Companies, Equity Refinancing Performance

Generally speaking, seasoned equity offering (SEO) includes right issuing, issuing new shares and issuing convertible bonds. Although there have only been 20 years since security market emerged in China, seasoned equity offeringhas become one of the most popular financing methods among Chinese companies. This paperinvestigatesthe performance of seasoned equity offeringof listed companies in China and analyzes the factors behind it.Because the operating performance of state-controlled listed companies is always affected by non-market factors, this paper excludes the state-controlled factors and focuses on the SEO performance of private listed companies in China. The study samples are 208 private listed companieswhich conducted SEO during 1995 to 2008 and have complete financial data.It is documented that the SEO companies on the wholeexperienced a sharp decrease in post-offering operating performance, which reflects the inefficiency of SEO among private listed companies in China.In order to find the causes of this phenomenon, a multiple linear regressionmodel is built in this paper. The model is mainly based on earnings managementtheory, free cash flow hypothesis and capital structure theory. The regressioncomes to three main results. First, the significant change of asset impairment loss of listed companies before SEO, which may imply the existence of earning management, can lead to a downturn of the post-offering operating performance. Second, the decrease in operating performance of listed companies after SEO has no significant connection with the pre-SEO surplus of free cash flow, which means the SEO data of private listed companies in China cannot stand for the free cash flow hypo thesis. Third, capital structure theorycannot explain the SEO phenomenon in China security market and the high asset-liability ratio before SEO has a negative impact on the post-SEO performance of private listed companies.Based on the empirical study, several policy suggestions are raised at the end of this paper for the sake of the development of capital market and private economy in China.