Study On Financing Substitution Effect Of Listed Companies In China

In recent years, devastating public health and safety events frequently happened in bio-pharmaceutical field in China. Which leads to such illegal activities in bio-pharmaceutical industry, venality or other deep-rooted structural imbalance? We will explain this phenomenon by studying the financing behavior.Substitution effect in the theory of consumer’s behavior means change in consumption of a good associated with a change in its price, with the level of utility held constant. Assume enterprises pursuit the minimum cost, enterprises become the consumers when they are financing. Various kinds of capital from different channels are equivalent to goods of different properties. The cost of financing capital is equivalent to the price of capital. When enterprises choose much less expensive capital, the substitution effect emerges between different financing channels.Choosing bio-pharmaceutical listed companies as research sample and discussing the behavior of listed companies from the perspective of substitution effect is a valuable attempt. Base on previous research results and existing problems, this paper builds three hypotheses. Hypothesis one:There exists equity financing substitution effect in China’s capital market. Hypothesis two:There exists internal capital market financing substitution effect of bio-pharmaceutical industry. Hypothesis there:There exists commercial credit financing substitution effect.For hypothesis one, we choose64listed companies’data of bio-pharmaceutical industry from2001to2011,704valid samples in all. A multiple correlation and regression analysis is performed to identify the equity financing substitution effect with asset-liability ratio as dependent variable and equity as independent variable. Size of listed companies, profitability, domestic credit, credit constraint and the performance of stock market are chosen as control variables.For hypothesis two, we choose78public companies’data of bio-pharmaceutical industry in2011. Through descriptive statistical analysis, single factor analysis and multiple-factor analysis, we check the pertinence relation between all non-bank borrowing rate and the complexity of listed companies’hierarchical structure.After hypothesis two be certified, we test hypothesis three by a multiple correlation and regression analysis between commercial credit and all non-bank borrowing rate.All econometric models’goodness-of-fit indexes are good, Ftest statistic prove the significant statistical significance of models, Durbin-Watson test says there is no correlation between residual errors, Variance inflation factor prove to be no serious multicollinearity. Finishing regression results, we draw these conclusions as follows.Primary, there is no equity financing substitution effect in China’s capital market. Listed companies show no sign of obvious equity financing preference. Second, there exactly exists internal capital market financing substitution effect of bio-pharmaceutical industry. The financing behavior meets the Pecking Order Theory. Third, we find out the commercial credit financing substitution effect, but can’t confirm property of it. Assume there’s no internal capital market, commercial credit is just a substitution of bank loan which happen in external capital market, but you can also consider it as a financing channel of internal capital market.The commercial credit-liability ratio increase from24%in2004to33%in2011in bio-pharmaceutical industry. Listed companies likely extort working capital from upstream firms. They will leave upstream firms in liquidity shortage. Then under running after profits, these firms are more likely to put up opportunism tendency of illegal business.To figure out these conflicts, we should not expect perfect social institution or complete self-discipline. So a dynamic communication mechanism must be built between government and enterprises to reduce information asymmetry, improve the market system construction, protect the interests of investors, safeguard consumers’ legal rights and ensure all social welfare.