An Analysis Of Equity Financing Pre - Test And Influencing Factors Of Listed Companies In China

Financing is the most important acts during a company’s operation and expansion. Also it has been concerned by academic circles for long. In the1970s, Pecking order theory had become the most influential in the field of corporate finance. The core view of the pecking order theory is as follow. In a market of asymmetric information, the cost of bond financing is always higher than that of equity financing, so company should first choose internal financing, then select debt financing and finally consider equity financing under compelling circumstances. Most results of the empirical studies on mature Western markets are in line with the pecking order theory.However, the pecking order theory met great challenges in China capital market. Series of empirical studies in the early2000s confirmed that there existed "equity financing preference" among China’s listed companies. Some studies tried to explain this phenomenon by researching financing costs, ownership structure and so on. After2005, with the successful implementation of split-reform and the emergence of corporate bond market, the financing behavior of China’s listed companies has changed a lot. Do China’s listed companies still prefer equity financing?Based on pecking order theory, this paper discusses about financing preference and its influence factors of China’s listed companies. The main contents include:The chapter Ⅰ introduces the background and topic of this paper. Chapter Ⅱ reviews the development of corporate financing theories, focusing on the theoretical model of pecking order theory and relevant empirical research. Using a series of tables, Chapter Ⅲ describes that the financing mode of China’s listed companies is changing in process in recent years. The proportion of debt financing is gradually increasing, while the proportion of equity financing is in decline. Also, financing modes are different between big companies and small companies.In Chapter IV, using modified Myers and Shyam-Sunder model, this paper empirically tests the financing preference of China’s listed companies in2006-2011. The result shows that the "equity financing preference" generally does not exist. In details, China’s listed companies prefer external financing to internal financing, while they don’t show statistically significant preference between debt financing and equity financing. For big companies, Debt financing ratio and equity financing ratio are quite balanced, but small companies seriously rely on equity financing.In Chapter V, this paper chooses some variables, which describe company’s characteristics and situations of corporate governance, to test their influence on company’s financing behavior. Results are as follow. When a company has a more concentrated ownership structure, a higher proportion of non-tradable shares and state-owned shares and a situation that the chairman of the board serves as CEO, the company is inclined to launch equity financing. When a company has a larger assets, a higher proportion of independent directors, lower profitability and higher operating efficiency, the company is inclined. to launch debt financing. The company’s growth rate does not affect financing behavior.At last, Chapter VI summarizes the whole study and shows further research direction.