The Herd Behavior Of Listed Companies Financing Decision

Traditional literature of financing behavior are mostly based on the perspective ofcapital structure, capital structure theory has a lot of example: MM theory, financingthe Pecking Order theory, balance theory, signal theory and agency cost theory.However, these theories have an obvious and common defect, that they never takeinto account the non-rational market participants, they have been on the assumptionthat market investors and corporate decision makers are completely rational. But therehas been a lot of psychological research indicating that people in the actual decision-making are not the case. For example, the investment decisions of investors tend tofollow the strategy of other investors, but to ignore their own private information.Due to the rise of the recent behavioral finance, it is related to herd theoryfocusing on taking into account human psychology and behavior on the traditionaltheory not explaining the problem to give a good answer, so this article associates thatwhether can use herd behavior to explain the company’s financing decisions.Therefore from the angle of herd theory and the theory of capital structure as aframework, this text researches whether firm’s financing decision will be subject tothe financing strategy of other companies, as well as whether financing behaviorcaused a significant market reaction, and then judge the rationality of the financingdecision or not.This article by using the regression analysis method, as well as financing listedcompanies in the mainland and Taiwan stock market as samples, carries out empiricalresearch on the relationship between herd behavior and financing strategies, alongwith between herd behavior and the CAR. The results showed that:(1) Herd behavior exists in debt financing of mainland listed companies, and thereis a tendency to follow the leadership of the enterprise, but it is irrational herdbehavior; existence of herd behavior in equity financing, the performance of the herd phenomenon follows the leader rather than the market, however the herd behavior isnon-rational too.(2) Herd behavior not exists in debt financing of Taiwan listed company; but it isexistence of herd behavior in equity financing, and companies tend to followmedium-sized company, herd behavior is rational.(3) Financing behavior of herd extent in listed companies of mainland stockmarket is stronger than the financing behavior in the Taiwan stock market, and therational degree is lower than the Taiwan stock market.General study of herd behavior is mostly based on a method of LSV measuring offund manager herding, but this paper in reference to existing research literature is onthe basis of a new approach to the definition of herd behavior. And empirical findingsprove the importance of herd behavior on the impact of financing decisions. So thisarticle also provides follow-up study of herd behavior with a new research directionand the reference value.