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Equity financing preference of listed companies in China Analysis of Negative Effect

Author: PanLongPing From: www.yourpaper.net Posted: 2009-04-03 03:40:42 Read:
[Abstract] has been the phenomenon of widespread preference for equity financing, low gearing ratio of the financing of listed companies in China, this phenomenon is contrary to the behavior of the thinking of the "pecking pecking order theory and the trade-off theory, China's special economic system and the product of a unique economic environment, it is not only not conducive to the efficient allocation of social resources, but also a significant impact on the operating results of listed companies. This article will attempt from the listed companies financing structure point of view, combined with the specific characteristics of China's listed companies, prefer the status quo and causes analysis of corporate finance to discuss the suggestions and strategies to construct a reasonable financing structure.
[Key words] listed companies financing structure equity financing preference

First, China's listed companies equity financing preference Negative Effect of
After more than ten years of development and growth, China's securities market has become an important place for Chinese enterprises to raise funds. Year 2007 a total of more than 190 listed companies refinancing, which additional financing 302.591 billion yuan, the placement financing 23.254 billion yuan, hit a record high in Shanghai and Shenzhen stock market. Equity financing to some extent alleviate the problem of the lack of funds, reduce the company's asset-liability ratio, method of operation for the enterprise. However, many listed companies in the asset-liability ratio is quite low, still do not give up equity financing opportunities and even actively seek to enable the financing of listed companies in China order practice deviates from the traditional finance theory, the negative effect of equity financing preference increasingly apparent.
Financing structure change and sustainable profitability growth imbalance
Sustainable growth in corporate earnings is the basic guarantee for the implementation of equity financing. In the case of poor inside and outside the enterprise environment, excessive equity financing will inevitably lead to the decline in capital efficiency, impact on the profitability of the business, does not meet the requirements of the listed companies to maximize shareholder value. According to the market value of the listed companies Management Research Center statistics, 93 listed companies from 2000 allotment of view, the weighted return on net assets in the Fund was 15.31% in the year, fell to 9.42% in 2006. This shows that listed companies through a rights issue capital investment projects and not bring the expected high rate of return, but reduces the overall yield level of its assets, then an adverse impact on its sustained profitability.
Blind equity financing increases the tendency of blind investment and funding strand breaks possibility
Listed companies operating decision maker in the financing decisions with little regard to agency costs, resulting in a strong preference for equity financing. This preference manifests itself not only in the operators in the financing first choose equity financing, is also reflected in even in the absence of financing needs, but in line with the equity financing conditions, most choose equity financing. Many listed companies do not carefully study the feasibility of the project, just to "misappropriating" patchwork projects, resulting in a tendency to blind investment, accelerate the possibility of funding strand breaks.
Dampen investor confidence, affecting the healthy development of the securities market
Listed company equity financing and stock market and stock supply and demand relationship has connections. Excessive, too chaotic equity financing would result in investors in listed companies "misappropriating" resentment, causing the stock market plunged, reducing the company's market credit, affect the healthy development of the securities market.
Second, equity financing preference of listed companies in China Cause Analysis
Our special financing environment lead to equity financing preference
From the macro environment analysis, on the one hand the high growth of investment is the main driving force for promoting China's economic growth, which many listed companies have a thirst of funds; On the other hand, the development of China's capital market imperfections make bond financing channels narrow and difficult to finance. From the micro-environment, the pursuit of profit maximization, in order to reduce the payment of the direct costs of financing, resulting in some listed companies is the wrong emphasis on equity financing.
(2) the low cost of equity financing
The cost of outside equity financing of dividends and transaction costs. The dividend policy of listed companies in China, the reality is that a considerable number of the company for many years do not pay dividends or symbolic dividends, stock dividends low dividend payout, the dividend payout does not constitute much of a cost. The corporate bonds or bank borrowings, the lowest unit costs are greater than the cost of equity financing. The relatively low cost of equity financing is an important motivation for equity financing preference.
Equity financing "soft constraints" on the strong side
In the case of our existing capital markets, China's relevant departments defects and unreasonable for the dividend policies and regulations, with respect to debt financing, equity financing constraint is a soft constraint, the cost of equity financing is a soft costs. The different constraints intensity form different preferences, preferences for equity financing is driven by the low cost of financing equity alternative claims.
4. Inadequate corporate governance structure
For a long time there has been a characteristic due to the high concentration of shareholding countries. Such an unreasonable shareholding structure of the internal control of state-owned shares, the large proportion of state-owned legal person shares phenomenon manifested as a lack of checks and balances of corporate rights, making corporate financing scheme fully able to be in accordance with the wishes of the people of the internal control execution, which is caused by the system of corporate equity financing preference underlying causes of the reasons is that the enterprises malicious misappropriating public behavior.
Third, build a reasonable financing structure Countermeasures
(1) strengthen the system construction, regulate the behavior of public financing
The one hand, according to the law of development of the capital markets and market rules to strengthen the system construction of the securities regulators of listed companies equity financing, the implementation of a real sense of the approval system, the reduction and prevention of listed companies believe that to achieve the purpose of equity financing and operation; another have increased the audit of listed companies offering investment project and effectiveness, and improve the information disclosure system and monitoring mechanism, regulate listed companies to refinance behavior.
(2) the development of corporate bonds circulation market, and promote the optimization of the debt structure
The bond market in China compared with Western countries weak, mainly in contempt of the issuance of corporate bonds, corporate bond issuance constraints more, the current single species of corporate bonds. Departments should standardize the bond issue related systems, should increase the variety of bonds, and should gradually push forward the development of varieties of bond derivatives market to adapt to the needs of different enterprises of different financing options.
Establish a correct concept of financing, improve the structure of corporate finance
The company's management to establish a correct and reasonable financing concept to construct a reasonable financing structure, according to the needs of enterprise development, and strengthen internal financing in order to reduce the risk of financing to enhance the business autonomy. Should regulate the system of allocation of profits and retained profits of listed companies, listed companies to actively carry out the expansion of internal capital, and enhance their own strength.
4. Strengthen and improve the internal governance mechanisms
In our current market system is not perfect, need to do is to solve the problem of the agent, select a reasonable and effective corporate governance structure, the establishment of effective corporate incentive and restraint mechanisms, the implementation of the Human Capital Reform on Property Rights. The establishment of performance evaluation mechanism of the Human Capital structure of property rights, Human Capital flows and pricing. At the same time, it should also strengthen the operations of behavior operators the necessary oversight and improve the transparency of financial management, prompting the formation of strong internal constraints and incentives.

References:
[1] Ding Zhongming Huang following: the Preference Problem of the capital structure and financing of listed companies in China. Beijing: China Financial Publishing House, 2006
[2] Wang Yurong: financing structure and corporate performance of listed companies in China, Beijing: China Economic Publishing House, 2005
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