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The financing structure of listed companies in China with the financing paradox

Author: LuoYuZuo From: www.yourpaper.net Posted: 2009-08-16 11:26:56 Read:
[Paper Keywords] financing preference of listed companies financing structure financing paradox

[Abstract] composition ratio between finance theory focuses on corporate equity financing and debt financing, financing pecking order theory and the trade-off theory in recent years has gradually become the mainstream of corporate finance theory. However, various studies have shown that, contrary to traditional financing pecking order theory China's listed companies, steady development in order to promote the health of listed companies from the legal and corporate governance structure, we must solve the problem of irrational structure of corporate finance.
Preference theory, corporate finance and research
MM theory began in the late 1950s, the pioneering study of the theory of corporate finance. Early MM theory is that the enterprise value of which is independent of the financing structure, the theory ignores the corporate income tax and other factors which questioned by the practice. In 1963, Modigliani and Miller modified the theory that consider the company after-tax increase in the debt ratio can improve enterprise value. The tradeoff model theory introduced in the MM theory on the basis of the risk of bankruptcy, that the optimal capital structure of enterprises is the equilibrium point of effects of creditor marginal tax deductible and is equal to the marginal cost of bankruptcy, the cost of the latter part of the trade-off theory turn liabilities extended to agency costs from the cost of bankruptcy, the cost of financial distress, the theory further deepen. The above theoretical study of the core of the problem is the relationship between the corporate finance structure and enterprise value. Financing structure, also known as the capital structure, refers to some point enterprise contrast between various sources of capital, of which the most important is that the proportions between equity financing and debt financing. In the process of the development of the theory of corporate finance, many scholars began to study corporate finance issues from the perspective of asymmetric information, financing pecking order theory. Financing pecking order theory is that, due to the presence of incomplete information and adverse selection, showing a significant financing preference: first endogenous financing, after considering the bank debt or bond financing, before finally issuing shares. Financing pecking order theory and the trade-off theory in recent years has gradually become the mainstream of corporate finance theory.
Financing and financing preference theory, foreign scholars have conducted a more in-depth research, Shyam Sunder and Myer s (1999); Robert and Anuja (2000); Hovakimianetal (2004); Haan and Hinloopen (2003) from the corporate finance dynamic " preferences "as a starting point to study the capital structure in financing during the first draw of listed companies", again outside debt financing, the conclusion of the last equity financing financing preferences. Myers and Majluf (1984); Chirinko and Singha (2000) show that the listed companies financing if the debt financing can not meet the financing needs will consider the use of equity financing, showing obvious characteristics of the financing preference. Domestic theorists in this regard in the continuous development of the the Western corporate finance theory and empirical research conducted a lot of research, Wang Sulian (2003), who pointed out that China's listed companies there are serious equity preference financing. Capital market data of empirical research that there are many advantages, but its characteristics are not directly observe the "course of conduct" of the listed companies, but according to the "capital market 'results' data to infer the listed companies 'course of conduct' "(Zhengfei Lu, 2003). The Ge Yongbo (2007) pointed out that the theory of corporate finance concrete manifestation the static financial structure and dynamics of the financing preference two aspects of the financing structure on the static characteristics and dynamic behavior preferences are different concepts in the study of China's listed companies financing characteristics Only when the constraints of corporate finance preference by smaller financial structure in order to better reflect the nature of the preference. Therefore, based on the characteristics of the financing structure derived Equity Financing Preference conclusion is a plausible proposition.
Second, China's enterprises financing paradox and its status quo
Throughout China's listed companies, the relationship between endogenous financing and external financing, retained earnings positive company, from 1998 to 2005 years, the source financing ratio of 24.14% on average, the exogenous financing ratio reached an average 75.86%, external source of financing reflects the strong dependence; undistributed profit companies with negative the endogenous financing ratio -5.86% on average, the ratio of the external financing of more than 100%, the company financing is totally dependent on external financing. These results suggest that endogenous financing of listed companies in China's share in the financing structure, the lower the ratio, the dependence of the external source of financing is very strong. Secondly, from the structure of external financing, retained earnings greater than zero the Company equity financing ratio average of 73.25% debt financing ratio of 26.75% on average, retained earnings is less than zero the Company equity financing ratio average of 67.80%. debt financing ratio of 32.20% on average. The above data show that: both retained earnings greater than zero or less than zero samples enterprise, external financing, equity financing, the percentage is much higher than the debt financing. Combination of financing, it can be seen, the listed companies financing mainly rely on equity financing, followed by borrowers financing (including non-bank borrowings liabilities), endogenous financing enterprises to issue bonds to finance the ratio is very low (Ge Yongbo, 2007). The financing structure of listed companies basically reflects the equity financing - loans financing - of endogenous financing - bond financing "dependent order. The findings of this result and domestic scholars listed companies. That has a significant equity financing preference of listed companies in China, this preference and financing pecking order theory contrary, this phenomenon is called the listed companies' financing paradox.
Reasons for departure from the theory of modern finance structure cause actual financing structure of listed companies in China, we can be summarized in the following aspects:
Poor operating results of listed companies, the companies can not get the full amount of internal financing
Within the main source of financing is the company's retained earnings, the main source of retained earnings is the company's profitability. Therefore, the company's operating results, good or bad, is not only related to the level of shareholders' investment income, but also related to the size of the company capital accumulation, and thus related to the funds required for the development of the company self-solving level. Tang Xinhua (2003), the average after-tax profit of 48 agricultural listed companies from 1999 to 2002, the average earnings per share and average net assets yield statistics, results showed, agricultural listed companies results of operations of the overall downward trend, especially The significant decline in operating results in 2000, compared with 1999, the average after-tax profit fell 67.54%, 68.18% decline in average earnings per share, the average return on net assets decreased by 65.71%. And three indicators each year value except for 1999 were lower than the average for all listed companies in the same period.
Our legal system is not perfect, listed companies preferred equity financing
Listed companies in China is on the high side, because the actual cost of equity financing in China is not high: on the one hand, listed companies generally enjoying the various tax incentives given by the government to reduce the actual tax burden, thereby greatly reducing the actual cost of financing . Low dividend payout ratios of listed companies, on the other hand, is not assigned, allocated less widespread phenomenon, even if the distribution of dividends, also often preferred stock dividends, and less to take the way of cash dividends to be distributed. Therefore, a low dividend payout ratio means low financing costs. Equity financing with soft constraints. Companies such as debt financing, the loan contract term debt service, can not or do not follow the period of the loan contract debt service will be stricken frozen deposits archived assets, is bound to affect the company's reputation, affect the company's normal production operations. Therefore, the scheduled debt is a "hard constraints". Relative to debt financing, equity financing does not exist-servicing problems, coupled with not too much pressure dividend payment, the company completely in the soft constraints. Relaxed environment, listed companies prefer equity financing.
3. Structure of the capital market and suppress the financing capacity of the listed companies
China has not yet established a multi-level capital market system can not meet the needs of multi-level financing, financiers can not find additional sources of financing; Second in the running of the capital markets, the government of excessive market intervention, market supervision system is not perfect . Identified lack of timely and effective means of response and the corresponding liability for violations disposal; And our legal imperfect legal system framework for the protection of the legitimate rights and interests of the small and medium investors, lack of civil liability provisions of acts of prejudice to the rights and interests of investors, greatly dampened investor enthusiasm, which allows the company to favor equity finance.
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