The Equity Financing Preference and Market Timing in China

摘要

Based on the theory of market timing, the equity refinancing behavior and equity financing preference phenomenon of China's listed companies are studied. According to the sample data selected on the equity financing of the total market and the individual listed companies in China from 1997 to 2006, we find that the total stock market financing amount has a significantly positive relationships with the M/B (market-to-book ratio) of stock market; and whether equity financing or not, as well as the proportion of equity financing are significantly negative related to variation ratio of next annual M/B for individual listed companies. These empirical results show that there exists the market timing choice of equity financing in China's listed company, and the managers of listed companies, taking the advantage of asymmetry information and irrational transactions in the market, acquire a lower equity capital cost using the equity refinancing when their stock prices are overvalued, resulting the equity financing preference phenomenon.