The Formation Of Financing Excess In GEM And Its Influence On Companies’ Investment

Since Initial Public Offering (IPO) restarted in2009,"three highs" have been widely discussed by numbers of researchers."Three highs" mean high P/E ratio, high issue price and high financing excess in the capital market. Particularly, the problem of financing excess is common and serious since the establishment of Growth Enterprise Market (GEM).Financing excess, according to the definition of Shenzhen Stock Exchange, refers to the net funds IPO companies have raised which are equal to the balance after deducting the issue fees from the total funds raised, is even huger than the amount companies planed.Financing excess is, actually, a peculiar phenomenon of the capital market. Companies must have investment projects when they are preparing for issue, and they need to disclose their project plans in prospectuses. While in western markets, investment projects will not be required. Therefore, this kind of financing phenomenon or, to say, IPO phenomenon only exists in a few countries, such as China.In order to solve the problems that exist in the market and to make the market run more normally and efficiently, regulators keep trying to modify and optimize the rules of stock offering and the mechanism of pricing. However, unfortunately, the current state is still not optimistic. Regardless of the persistent fraud in IPO, the "three highs" we mentioned above have been widely condemned.Financing excess is regarded as a representation of inefficient resource allocation. It reduces the efficiency, and is harmful for market to function normally. One of the basic functions of capital market is to finance and to invest:to fund someone who needs money and to provide opportunities to those who are looking for one. That is why capital market is needed and established as a place for capital circulation. The fact that some IPO companies raise far more funds than they actually need while some companies who are hungering for funds but cannot get access to finance to run their projects, is a kind of misallocation of resources. Furthermore, the consequence of excess funds is also questioned. It is believed that excess funds will lead to more abuses such as leaving unused, spending on office buildings, over-investment, paying the executives more. In consideration of the practical significant, we decided to focus on financing excess. In the thesis, we have studied how excess funds come into being and how it will impact listed companies’investment behavior.Referring to Behavioral Finance Theory, this thesis analyzed IPO financing excess in GEM, and pointed out an essential factor:market irrational sentiment. At the same time, it observed excess funds’ influence on companies’ investment behavior, and explained the reason with the point of Principal-Agency Theory, especially the Investment-Cash Flow Sensitivity. This thesis could contribute to investigating the operation of GEM, explaining this IPO financing phenomenon, and providing academic support to solve inefficient funds allocation.Different from standard theories which is based on Rational-Economic Assumption and Efficient Market Hypothesis, behavioral theory emphasizes that participants of market are limitedly rational and the market is not that effective. It eased the assumptions, and used many ideas and methods of psychology, praxiology, anthropology, sociology and political science and so on for reference.Behavioral Finance Theory is found to be useful in explaining anomalies in capital market, and a lot of achievements have been made, which makes Behavioral Finance Theory a hotspot.Our market is still immature, whether in aspects of system, participants, or information environment. For example, we have many medium and small investors; the development of organizations is insufficient and the normative needs to be strengthened; information asymmetry is serious and the transparency of disclosure needs to be improved; the system is not complete and far from perfect, and the regulators are constantly trying hard to modify policies as well as adjusting their own duties and position. Therefore, our market is inundated with various kinds of anomalies, which makes it a perfect place to apply to or develop the behavioral theory.In this thesis, we studied283companies who issued from2009to2011in GEM, and examined the influence of irrational sentiment on the formation of financing excess, and how the excess funds would impact on companies’ investment. The results showed the following conclusions. First, the enthusiasm of primary market is an important factor for financing excess, and they two show significant positive correlation. Second, investors show an irrational preference for issue month, the total scale of funds raised, the scale of excess funds, and the degree of excess show an significant relationship with issue month. Third, the excess funds significantly impact on companies’investment in future, the more funds IPO companies raised, the more excess funds raised, and more serious excess is, companies will invest massively, and are more likely to over-invest.Our results have verified our assumptions, examined the view that market sentiment would influence companies’investment and financing behavior, testified the Calendar Effect to some extent in our GEM and examined the Investment-Cash Flow Sensitivity.There are six sections in this thesis. The first part is introduction, stating the background, purposes, contact of our research, and the framework of this paper. The second part is literature review. In this part, in order to determine our research perspective, we have collated relevant literatures, summarized scholars’ point views, and observed research status. The third part is theoretical basis and hypothesis in which we analyzed relevant theories, then we put forward the hypothesis. The fourth part is research design, in which we determined the sample of empirical analysis, variables, models, etc. The fifth part is the empirical test results and analyses. We first made the descriptive statistical analysis, and then presented the results with analyses. The sixth part is conclusion. In this part we summarized the findings of our research, and accordingly put forward some policy recommendations.We mainly gained originalities in the following aspects:①Financing excess is a peculiar phenomenon of our capital market. Although it has been existing for a long time, it hasn’t been called attention to the public until recently, especially at the time when Growth Enterprise Market is established. It becomes a hot and widely-discussed public spot. So our topic is new with a practically important significance.②Throughout relevant literatures, underwriters’interests and the system have been called a lot of attention to, but the role of market sentiment was less noticed. So it is an innovation point for us to discuss our topic in this perspective.③We designed an original variable, the offline subscription amount, which was an appropriate measure of market sentiment.④Researches on market irrational or investor sentiment are common and hot abroad while there is few in our country. Therefore, we combined classical financial theory and behavioral theory in our research, empirical evidence of this thesis might be helpful for future research on relevant fields.