Seasoned Equity Offering And Demand Elasticity Of A-Share In China

In order to deepen the understanding of China’s capital markets, this research, based on existing research, studies the additional equity offerings by listed company on China’s A stock market and focuses on the impact from the stock’s supplement, using empirical analysis to examime the stock’s demand elasticity, efficient markets hypothesis, leverage hypothesis and free cash flow hypothesis.When a listed company is short of funds on the way of developing, they could raise funds again on the basis of original capital stock, we call this behavior as additional equity offerings in China. This type of financing has developed for13years in China, and is becoming the most popular re-funding method for Chinese listed companies in Chinese capital markets.This research adopts a sample meeting the requirements of China’s stock market from2002to2011and applies the method of event study to those data. The announcement day and traded day both are defined as event day. The former represents the impact from the information level; the later represents the impact of actual change from the supplements. And the days from the60th day before event day to the21th day before event day is defined as estimation window; the scope of20days around event day is defined as event window, which will be used to calculate the abnormal return and cumulative abnormal return.Based on the analysis mentioned above, this research has those conclusions:(1) in this period, the stock demand elasticity is positive.(2) This research indicates the efficiency of stock market.(3) The leverage hypothesis is not fully valid in Chinese stock market.(4) The free cash flow hypothesis is not valid in Chinese stock market.(5) The cumulative abnormal return of additional equity offering in private placement is1.86%or2.4%higher than that in public offering.