Empirical Study On Second Equity Offering's Effect On Corporate Value Of China's Listed Companies

After ten years of development, equity financing has gradually changed in the exchange market-second equity offering scale has expanded unceasingly, especially the equity private placement, which became the first choice of equity financing for the listed companies. In the year of 2006, equity private placement scale realized breakthrough development, which exceeded initial public offering scale later in 2008 and has kept the advantage since then. Studies from home and abroad have shown that second equity offering has damaging effect, in terms of the corporate value. "The New Issue Puzzle" does exist in China's capital markets: on the one hand, the second equity offering market continues booming, which on the other hand, reduced the corporate value. Thus, the study on how second equity offering influence the corporate value, which is the main topic of this paper, is particularly important. This paper applies literature analysis, comparative analysis and empirical analysis. The empirical analysis includes three parts. First, the paper analyzes corporate value change trend and range after implementation of second equity offering of listed companies, in the long-term perspective.Second, the paper analyzes the relationship between price-to-book (PB) ratio based on 20 trading days before pricing benchmark, equity private placement capital scale and the change of corporate value. Last, the paper studies the effect of excessive investment on changes in corporate value.The full text is divided into five parts, the concrete contents are as follows.The first part is the introduction, which carries on the brief explanation for this article. This part mainly analyzes the research background and the studies from home and abroad concerning second equity offering were reviewed. It also introduces the research methods, the content and main innovative points and limitations.The second part is the theoretical hypothesis of the second equity offering which is the basis of this article. It reviews the current theories that the second equity offering will reduce the corporate value, and makes comments on the theoretical hypothesis.The third part is the overall design and the basis of empirical analysis of this paper. It includes how the variables are set, what are the research hypothesis, how to choose the model, together with the paper sample selection rules and processes.The fourth part is empirical test and analysis of the results.Using Tobin Q, return on assets (ROA) and return on equity (ROE) as measures of the corporate value, after the analysis and comparison of the change trend of listed companies' value that adopted second equity offering, this paper concludes that the value of listed companies will decrease after second equity offering. Multivariate statistical regression analysis has been carried on equity private placement companies, and identifies the relationship between PB, equity private placement capital scale and the change of corporate value. Meanwhile, multivariate statistical regression analysis has been carried on corporates whose value have been declined. Measure sample corporation over-investment level by using residual measurement model, and find that over-investment corporates will suffer a higher probability of decline in corporate value. Over-investment is one of the reasons for the decline in corporate value. However, whether alter the financing capitals has no significant relationship with the change of corporate value.The fifth part is the conclusion and policy recommendations. It is concluded that the implementation of second equity offering will reduce the corporate value. When its share price is higher, the company has a tendency of equity private placement. When the PB ratio of listed companies is higher, the fall in the value of the company in the long term will be more obvious. Moreover at the very year of equity private placement, corporates have fairly high over-investment tendency. Recommendations were put forward for listed companies on how to use second equity offering to increase corporate value.The innovation of this paper shows in three aspects:the first is the long-term study period; the second is choosing PB based on 20 trading days before pricing benchmark as an indicator measuring the overvalued degree of share price; the third is categorization research in sample firms implementing equity private placement.The insufficient of this paper reflects in two aspects:due to the shortage of sample firms, the paper lacks thorough empirical study in share allotment and secondary public offering; the paper is not to explain the influence factors contributing to increasing corporate value.