Abstract
The “Supply-side effect” on financial management caused by market imperfection has increasingly been concerned. During the transition period, there is strict securities regulation in China’s capital market, which brings the supply-side constraints to corporate financing. Using the data of listed companies those take secondary equity offerings between 1993-2007 in China’s A-share market, the paper examines how the change of regulation policies on SEOs affects cor-porate financing decisions. Our result shows that regulation policy is a significant factor to the amount of refinancing and the optimal capital structure. This result provides important evidence on how the equity regulation environment affects corporate financial management.
Highlights
Since the pioneering work by Modigliani and Miller [1], the study on capital structure has continued for more than half a century
Our result shows that regulation policy is a significant factor to the amount of refinancing and the optimal capital structure
Significant at 1% level, indicating a large difference among ten subsamples. These results preliminarily show that the revolution of Seasonal Equity Offering (SEO) regulations does heavily affect the proceeds of firms’ SEO decisions as well as optimal capital structure
Summary
Since the pioneering work by Modigliani and Miller [1], the study on capital structure has continued for more than half a century. All existing theories have their own assumptions of environmental conditions and concentrate on some factors that influence the financing decision and capital structure of the firm. These factors are very important for some firms under corresponding circumstances, which, are not necessarily the case under other circumstances. In a non-efficient market, the manager can make best use of the inefficiency of the market to create value by reasonably making the financing decisions This conclusion derives the market timing theory of financing, which is: with the price changes in stock market, the enterprise has the best financing opportunities or Window of Opportunity, firms can select stock offering after it goes up. For the importance of the market timing theory in recent years, this paper will examine the applicability of the market timing theory in China’s market at the same time
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