An Empirical Study On The Behavior Of Entrusted Financing By The Listed Company

Entrusted financing by listed company is a unique phenomenon in Chinese capital market. It is a phenomenon that the listed company entrusts its cash or cash in bank to the trustee, such as bank, trust company, fund company and so on, and the trustee manages the entrusted property in a specific period according to a contract. The benefits obtained from the property management are distributed between the both sides in accordance with the contract, or a certain fee is charged as the payment to the trustee.Entrusted financing seems to be an effective way to improve the capital turnover. However, the entrusted financing by listed companies is questionable. Because once the company goes public, it has to undertake corresponding social responsibility in leading the industry and economic development. But the listed company puts its primary money into the virtual economy instead of the real economy, which will distort the resource allocation function of the capital market, as well as have adverse effect on the sustainable development and core competence of the listed company. Meanwhile, the risk of entrusted financing will also do harm to the company.From2011to2013, with the outbreak of the shortage of money in China, the phenomenon of entrusted financing of listed company also ushers in a new climax, which both in number and scale is at a record high. In such a context, this paper, by analyzing real financing data and making empirical research, explores the internal driving factors which influence the entrusted financing of listed company.The empirical results of this paper shows that listed companies, whose industry is in bad condition or whose main business runs into trouble, are more likely to entrust financing. In order to cover up the poor performance of their main business, these listed companies use the financial income to improve the overall performance. Meanwhile, from the perspective of capital resource, equity capital, which including capital from IPO, allotment and additional, is preferred.