Research Of The Impact Of Listed Companies’ Private Placement On Their Credit Financing, Investment And Capital Allocation Efficiency

To realize and optimize resource allocation is one of the most important functions of stock market. Under signaling mechanism, an efficient stock market can help to induce capital flow out from enterprises and industries with lower efficiency into the ones with higher production efficiency. As capital is the most important ingredients of kinds of social resource, its flowing among enterprises and industries will result in the flow of such resources as human resource and technology, etc. among different enterprises and industries, which will help to optimize the allocation of social resources.Since the found of China’s stock market in 90s of last century, many enterprises have got financed through IPO and equity refinancing, which have not only alleviated the financing constraints but also helped to optimize resource allocation. However, after the promulgation of "measures for the administration of securities issuance of listed companies" in 2006, private placement of listed companies has taken the place of allotment and SEO and become the main equity refinancing mode in China, its proceeds have even exceeded the ones of IPO. Undoubtedly, whether or not the private placement of list companies is able to contribute to the optimization of social resource will affect the stock market to realize and optimize the allocation of resources. Though economists have investigated the impact of such equity financing as IPO, allotment and SEO on the optimization of resource allocation, whether or not the private placement can help to optimize resource allocation has not been examined up to date. This paper is aimed to investigate the impact of listed companies’private placement in China on the optimization of capital resource and thus provide some useful policy proposals.As private placement of listed companies affecting capital allocation efficiency is not achieved in one step, we analyzed the distribution features and its influencing factors of private placement of listed companies firstly after finishing the literature review. Then the intrinsic relationship among private placement, credit financing, investment and capital allocation efficiency was discussed. Finally, taking enterprises’ ownership, subscribing manner and biding objects into consideration, we examined the impact of private placement of listed companies on the following credit financing, investment and capital allocation efficiency and gave some useful policy proposals based on the acquired results.After having investigated the motivation of listed companies to conduct private placement, we found that though timing selection and enterprises’listed years are basic factors they can give limited explanations. For further examination, we considered the impacts of such enterprises’ external financing needs as free cash flow, capital expenditure and debt on the listed companies to conduct private placement. As is found, 54.8% of listed companies having conducted private placement will be faced with free cash shortage if there is not the private placement proceeds and the according ratio will rise up to 85.3% if the new added debt is diminished, which demonstrates that to alleviate cash flow pressure is the main goal of listed companies to conduct private placement.When examining the impact of private placement on enterprises’credit financing, we found that private placement can help to improve private enterprises’ credit financing ability to a higher degree compared with those state-owned ones, and if private placement issues are subscribed with cash, the needs of companies to conduct credit financing becomes lower which are the same for both state-owned and private ones. Finally, if the controlling stock holders participate in the subscription of new issues and improve their stake ratio after private placement, it will help private firms to improve credit financing ability to a higher extent than for state-owned firms.After investigating the impact of listed companies’private placement on their investment efficiency, we found that in general China’s list companies experience overinvestment, but for the ones conducting private placement they are confronted with underinvestment. If the controlling stock holders participate in the subscription and improve their stake ratio after private placement, the underinvestment will be alleviated to a higher degree for private companies than for state-owned ones. If the other strong stock holders participate in the subscription and improve their stake ratio, there is not significant difference between private and state-owned enterprises although their underinvestment can be alleviated. Finally, if the new issues are subscribed with cash, the sensitivity of investment to cash flow will improve and the underinvestment can also be alleviated, which is to a greater degree for private firms than for state-owned ones.When examining the impacts of private placement on capital allocation efficiency, we found that private placements of listed companies can help to optimize the capital allocation for the whole companies and private ones whose ROE is above the market mean value, yet they can not do any good to the optimization of capital allocation for state-owned ones, which is the case when the new issues are subscribed with cash. However, whether or not the controlling stock holders participate in the subscription will not help to the optimization of capital allocation for enterprises whose ROE is above the market mean value in any case. But for the enterprises whose ROE is below the market mean value, the private companies’ controlling stock holders participate in the subscription will do good to the optimization of capital allocation. On the contrary, the private placement of state-owned companies can not contribute the optimization of capital allocation among them.Eventually, some important results in the research were summarized in the last chapter and pieces of advice were proposed based on the previous results and some configurations for further research were figured.The text was organized as follows:The first chapter was the introduction. Part one introduced the research background, its objectives and significance; part two described the research thinking, contents and methods used in this paper; the last part pointed out the innovation and the shortcomings of this research.The second chapter was literature review. Part one were literatures concerning listed companies’ private placement. Part two were the literatures related to financing. Part three was the literatures about investment. Part four introduced the literatures concerning capital allocation efficiency. The last was a brief comment.The third chapter was the analysis of listed companies’ private placement distribution features and its influencing factors. We introduced the basic concept of private placement and its institutional evolution in the first part. Then its distribution characteristics were demonstrated in the next. Part three examined the impact of market timing and listed years of companies on their private placement. Part four continued to investigate the impacts of firm’s external financing need on their private placement decision from cash flow, capital expenditures and debt aspects. The last was a summary.Chapter four was the discussion about the relationship among private placement, credit financing, investment and capital allocation efficiency. Part one introduced the relationship among credit financing, investment and capital allocation efficiency. Part two demonstrated the mechanism private placement impacts the following credit financing, investment and capital allocation efficiency. In the last, we described the prospects that listed companies’private placement influences the following credit financing, investment and capital allocation efficiencyThe fifth chapter examined the impacts of listed companies’ private placement on their following credit financing. Part one introduced the status quo of China’s list companies’credit financing. Part two gave the theoretical analysis and imposed basic research hypothesis. Part three was the empirical analysis. And the next part introduced the results and the according explanations. The last part was a summary.The sixth chapter investigated the impact of private placement of listed companies on enterprises’ investment efficiency. The first part overviewed the measuring method of listed companies’ investment efficiency. And part two was the related theoretical analysis. Part three was the empirical analysis of the impact of the private placement on the subsequent investment of the enterprises. Part four were the empirical results and explanations. The lasted part was the summary.The seventh chapter studied the impact of private placement of listed companies on capital allocation efficiency. The first part overviewed the measure of capital allocation efficiency. The second part analyzed the impact of listed companies’ private placement on capital allocation efficiency among enterprises theoretically. Part three was the empirical analysis. The next part was the empirical results and explanation. The last was the summary.The last chapter was the conclusion and policy proposals. The first part summarized the conclusions acquired in the paper. Then some policy proposals were imposed. In the last part, some configurations for further research were pointed out.