The Correlation Analysis Of Chinese Listed Corporations’ Life-cycle And Financing Strategy

Growing as an organism, the corporate must go through birth, growth, maturity,recession and death, which means the corporate has its own life cycle. At thedifferent stages of life cycle, the corporate purchases distinct developing aims,resulting in the variance of funding demand and profitability, thus the imparity offinancing strategies at each stage is worth being analyzed. Among all the strategiesrelated to finance, Pecking Order Theory and Trade-off theory are most common.However, the scholars in China always come out with conclusions inconsistent withthe two theories above after they conducted the empirical analysis. In addition, whilethe development and environment of economy changes, the challenges andopportunities faced by companies are increased either. Thus the function of capitalbecomes more significant. If the company fails to make the right decision of theproportion of different financial sources, it is also quite hard for companies toaccomplish the goal of maximizing the firm’s value. Inspired by this inconsistency,the author of this thesis attempt to test these two theories based on Chinese data inthe perspective of corporate life cycle.The author selected2002to2012data of Chinese listed companies inmanufacturing industry as researching objects. For two reasons, first the life cycle inmanufacture industry is more obvious compared with other industries. Second thecorporate management of our listed companies have become complete since2002.Then4993sample observations have been achieved, deriving from10sub industriesaccording to first two coding of The Instruction of listed companies’ industrialcategory. Finally the samples are classified into4parts by using factor analysisapproach and clustering analysis. The result turns out most of our listed companies has already spent the growth period, entering mature and recession periods.To test practicability of these two theories in Chinese capital market, the authorof the thesis adopts Trade-off theory empirical model, Pecking Order theoryempirical model and the combining model of these two theories. Finally the researchresult reveals that the companies at the stages of growth and maturity periods set outits financial strategies in accordance with the Trade-off theory. As the company’soperation slides to the recession stage, this accordance begins to decline. Meanwhilenone of the companies at any stages is consistent with the Pecking Order Theorywhile financing. As the company facing financial deficit, equity financing is inpriority, then debt and internal financing comes last.In addition, this paper gives the reasons for the financing strategy of listedCorporation in China not satisfying the pecking order financing theory.. First of all,because among the listed Corporation of our country, most of them are state-ownedrestructuring enterprises. Thus the innate corporate governance mechanism isimperfect. The poor quality of income, internal funds can not meet their investmentneeds. At the same time, China’s listed companies exist serious "insider control" andmanagement personnel capital conscious cost and other issues, leading to theenterprise in the face of the demand for funds and the choice of external financingwill be the higher cost of equity financing choice rather than the relatively low costof debt financing.