Study On Equity Financing Preference Of China’s Pharmaceutical Public Companies

When analyzing the financing structure of China’s listed companies, an intriguing phenomenon was found by Chinese scholars, which is called equity financing preference of Chinese listed companies. As for the selection of financing methods, most of these companies will primarily resort to equity financing, with bond financing followed, and internal financing the last. Even those whose asset-liability ratio is close to zero, they still hope to raise fund through the issuing of shares. Currently, no listed companies were found to abandon the opportunity of equity refinancing.In China, because of the particularity of the industry of pharmaceutical public companies, the phenomenon of equity financing preference is more significant. However, instead of promoting the sustainable growth of performance or effectively improving the resource allocation, the large amount of equity financing has brought a range of issues, such as corporate governance inefficiencies and benefit infringement of small and medium investors. Therefore, this paper focus on the reasons of equity financing preference based on the samples of several pharmaceutical public companies in China, and trying to put forward some policy recommendations on the optimize of financing structure and the improvement of corporate governance efficiency.The structure of the paper is organized as follows. Firstly, the paper reviews the domestic and international studies on the financing issue of listed companies. Then, by summarizing related theories on the issue and studying financial statements of China’s pharmaceutical public companies, this paper carefully analyzed the financing structure of those companies. As for the formation of equity financing preference of China’s pharmaceutical public companies in China’s specific national conditions, this paper analyze the reasons from theoretical and empirical aspects. In theoretical study part, the paper mainly focused on institutional factors and non-institutional factors; and in empirical study part, the paper takes pharmaceutical public companies of year2011as research object, and identifies independent major factors which affect the financing structure of those companies through factor analysis; further regression analysis provides empirical evidence for such influence. Based on the above analysis, the paper then identified five major factors that affect equity financing preference of China’s pharmaceutical public companies and their order of importance, namely, solvency; operating capacity; profitability; enterprise scale; equity structure. All these five factors significantly affect the equity financing preference of those companies. Finally, on the premise of the conclusion, this paper puts forward a series of measures and suggestions on the optimization of financing structure of China’s pharmaceutical public companies.