Analyst following, information asymmetry and debt-equity choice -empirical evidence from the emerging capital market of China

Abstract

In china, many scholars have researched the financing strategy of the listed company from the perspective of financial characteristics such as profitability, size and so on. Fewer scholars have studied how the company's external factors affect the specific type of financing structure (the size of debt financing ratio, the size of equity financing, etc). Securities analysts are an important component of investor relations management in the listed companies. Many researches have suggested that securities analysts play a central role in the acquisition and dissemination of information in capital market. The goal of our paper is to study the influence of securities analysts on corporate decision-making behavior, especially on the arrangement of corporate financing structure. Our tests show that firms with more analysts following are more likely to issue equity compared with debt financing, and the phenomenon is more prominent for small firms. In addition, we also find that firms with fewer analysts following increase the probability of large amount of equity issues as opposed to small amount of equity issues. The result is consistent with market timing behavior associated with information asymmetry. Our research has confirmed that securities analysts of china have important influence on financing arrangement of the company which is followed.