Market Timing Behavior Of Equity Financing Under Government Control

Lots of studies at home and abroad have found that market timing is widespread. Market timing is that companies will issue equity when the stock was overvalued, and will repurchase or raise debt when stock was undervalued, financing Control is existing in China’s capital market. There are different stock issuing and listing systems for Initial Public Offerings and Seasoned Equity Offerings during different periods. Therefore, the introduction of market timing theory is very necessary to equity financing behavior of listed companies in China. It may better explain the phenomenon and the essence of the company’s financing decision in Chinese capital market. SeControldly, this paper will study the listed companies’financing decisions on market timing performance under China’s stock issuance and listing system, and explore the market timing theory’s applicability in China’s capital market.This paper sets the listed companies which issued equity from1996to2010in Shanghai and Shenzhen Stock Exchange as a sample, studies if its equity financing will choose a good market opportunity, the degree of market timing under different stock issuances, the degree of market timing of different types of financing (IPO, SEO), and investigates the degree of market timing of companies in different nature. This paper references Pagano,Panetta,Zingales (1998)’s and Alti (2003)’s method, uses industry abnormal market-to-book ratio (the mean/median of industry market-to-book ratio minus the average of industry market-to-book ratio) to measure the degree of companies’market timing, and finds:listed companies will issue stocks when the market timing is good (the price of their stock is overvalued.). Listed companies will raise more money when industry market-to-book ratio is higher (the market timing is good). Under the Under the government Control background, the degree of market timing in company’s SEO financing is higher than IPO. The degree of market timing in corporate equity financing is higher under approval system than stock issuance examination and approval system. After the implementation of the sponsor system, the degree of company’s equity financing market timing is higher than before. Corporate nature will be impact on the company’s market-timing:the degree of private enterprises’equity financing market timing is higher than the state-owned enterprises. The degree of market timing in company’s SEO financing is higher than IPO in the state-owned enterprises sample. There is no different of the degree of market timing in company’s SEO and IPO in the private enterprises sample. The degree of market timing of the private enterprises is higher than the state-owned enterprises whenever it is IPO or SEO. The degree of private enterprises’equity financing market timing is higher under approval system. After the implementation of the sponsor system, the degree of private enterprises’equity financing market timing is higher than before.