Research On The Annoucement Effect And Long-run Performance Of Public Utility Listed Company’s Refinancing

Many issues have emerged currently regarding refinancing as main financingmean of listed companies, and the proper use of refinancing by public utility listedcompanies concerns the sound development of public utilities sectors and the smoothprogress of related infrastructure in China. This study sought to study the optimizationof the capital structure from an incremental perspective by measuring the announcementeffect of taking a particular mode of refinancing and its impact on the long-runperformance of the company, and to reveal the influencing factors from both short-termand long-term perspective.Because of the lack of uniform identification standard of public utility listedcompany on existing research, this study performed a more comprehensive andsystematic classification of public utility companies based on the definition of publicutility and the general industry classification criteria, and identified110companieslisted on A-share stock market. Most current researches maily concentrated on theequity refinancing, while this study also incorporated the debt refinancing, andidentified three main refinancing modes (i.e. second equity offerings (SEOs), issuingordinary bonds and issuing convertible bonds) and their respective characteristics byanalyzing these companies’ refinancing history.Using the event study methodology, this study implemented empirical analysis onthe announcement effect of these three refinancing mode, measured the abnormalreturns and discovered that SEOs has a significant negative announcement effect,issuing bonds has a significant positive announcement effect and issuing convertiblebonds has a negative but not significant announcement effect. These findings are similarto those of research on Chinese stock market as a whole in term of trend but aredifferent in term of magnitude. By building a multivariate regression model, this studyanalyzed the influencing factors from the perspective of the company’s fundamentalsand the characteristics of refinancing, and found that the company’s fundamentals havesame impact on the announcement effect even though the refinancing modes differ.Return on equity, net profit margin and debt-to-equity ratio are all positively related to the accumulated abnormal return. The market pays more attention to the profitabilitywhen talking about SEOs and to the financial leverage when talking about issuing bonds.As to the characteristics of refinancing, the dilute ratio and the relative issuing scalehave little impact on the announcement effect but the market does concern about thepurpose of fund-raising and account receivable turnover.As for the impact on the long-run performance, given the industry particularity ofpublic utility, this study not only compared the business performance from an economicpoint of view, but also incorporated social performance by using social indicator inorder to implement a more comprehensive comparison. By vertically comparing theperformance of the company before and after refinancing and horizontally comparingthe performance of the company with the average level of the industry, this study foundthat the companies using equity refinancing mode (i.e. SEOs and issuing convertiblebonds) performed significantly worse after refinancing, and the companies issuingordinary bonds significantly outperformed their peers although their performanceindicators changed little. These findings are similar to those of research on Chinesestock market as a whole.The implication is that providing a relatively low financial leverage of Chinesepublic utility listed companies, increasing the debt-to equity ratio appropriately wouldimprove the operational performance and gain a better result than equity refinancingwould. When making refinancing decisions, public utilitity listed companies shouldconsider issuing bonds first, then taking SEOs and resorting to convertible bond finally.