ABSTRACT Regardless of debt financing constraints or theoretical dynamic uncertainty analysis, there is a close relationship between a company’s value and its capital structure. This close relationship is largely realized through the siphoning effect of equity financing. Based on panel data from multiple private placements of Chinese non-financial listed companies between 2010 and 2022, this paper explores the siphoning effect of equity financing from company size and financial condition perspectives. The study results indicate: First, equity financing brings a significant siphoning effect for listed companies, but this effect gradually weakens and may even become a constraint as the number of equity financings increases. Second, small companies experience a stronger siphoning effect from equity financing, and the rate of decrease in the siphoning effect with multiple rounds of equity financing is less pronounced in small companies compared to larger ones. Third, for companies in poor financial health, the siphoning effect of equity financing is only short-term. Equity financing can increase the short-term liabilities of financially distressed companies but does not alleviate their long-term debt financing constraints. These conclusions provide new empirical evidence for the preference for equity financing in China’s capital market.
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