Investor Emotion And Equity Financing Cost

The cost of equity financing can be said to be a crucial link in the development process of the enterprise,and its level will have an impact on the development of the enterprise from the aspects of investment and financing decisions and business risks.From the perspective of enterprise development,it is important and urgent to find the reasons that affect it and to explore the reasons why enterprises have a preference for equity financing in the Chinese capital market.According to the research results of the existing literature on the cost of equity financing,a considerable part of the literature is based on the traditional financial theory and analyzes that the reasons of equity financing.However,in recent years,the capital market has been inconsistent with the traditional financial theory.In view of the financial crisis,which has become shorter and more influential,and more destructive,people have begun to question or even abandon traditional financial theory.This is mainly reflected in two major aspects:First,people increasingly realize that the capital market based on theory is not the same as the capital market based on reality,that is,the real capital market is not a complete and effective market;The second is based on the rational person hypothesis to conclude that the investor is the existence of rationality.This premise is also inconsistent with the investment behavior of real investors.More facts show that investors are not completely rational.When the capital market is not completely effective and the investors are not all rational,the investment and financing decision of the enterprise must be disturbed.However,there is little literature to directly study the impact of irrational investors on the cost of equity financing and how much the impact is.From 2011 to 2017,China's Shanghai-Shenzhen A-share listed companies will be the main research object.Combined with relevant domestic and foreign literature,this paper will thoroughly compare traditional fi nancial theory and behavioral financial theory,and establish a model to test the company's equity financing costs in the incomplete market.Whether or not it is affected by irrational factors and the extent of its influence.Empirical research will use the principal component analysis synthetic index to measure investor sentiment,use the PEG model to measure the cost,and then use multiple regression to analyze the relationship between the two;Then two adjustment items of cash holding and economic cycle are added to study the changes in the relationship between the two after adding the ad.justment items.It is found that the cost of equity financing is affected by the investor's emotion,and the two are unidirectional negative relations.On the one hand,the company's cash holding level is different,and the degree to which its equity financing costs are negatively affected is different.After the adjustment is added,the relationship between the two will not be reversed but will appear high and low.The impact of high cash holding levels is even greater;On the other hand,under the adjustment of the economic cycle,the cost of equity financing of enterprises during the economic boom stage is more affected by the negative sentiment of investors.Finally,according to the research results of this paper,and combining with the present situation of capital market in China,some reasonable policy suggestions are put forward.