The Research On Chinese Listed Companies' Decision Of Seasoned Equity Offering Based On Behavioral Finance Theory

The most fundamental function of capital market is to turn savings into investment, so to speak to provide financing platform for enterprises. It has nothing to be blame of for listed companies to raise money for operational activities through equity refinancing; however, it proves a problem if they fail to protect the interests of external investors while making relevant financing decisions, which may even stick the label of "enclosure of money" (which refers to ill-intentioned financing under legal disguise) onto equity refinancing in the end. Such market disorder seriously destroys investors'confidence and reduces the resource allocation efficiency in the capital market. Although the regulatory department has paid much attention to it, the effect of policy regulation still remains unsatisfactory. In regard to such "equity financing bias", domestic and foreign scholars have already made extensive discussions and put forward many persuasive interpretations and opinions. Many of the past researches are done on the basis of standard financial theories, characterized by the presumption of rational economic man as the main body and the exclusion of irrational psychological bias which decision makers do have inherently; therefore, the results might also be biased to certain extent. Taking a more realistic presumption as its foundation, Behavioral Finance reviews the timing for resource allocation under uncertain circumstance from a thoroughly new angle; in comparison with the Standard Finance theory, its analysis framework appears more suitable for the Chinese financial market which is yet mature. By referencing the achievements of Behavioral Finance, this paper discusses and verifies some of the irrational behavior bias which influences on the decision-making of equity refinancing by listed companies in China, trying to find reasonable answers for the following questions: what is in common while the Chinese listed companies decide to make equity financing? What are the influences of such common feature on macroeconomic and microeconomic entities? Whether the irrational psychological bias of external investors in financial market will influence the decision-making of equity refinancing by listed companies and how? And whether the irrational psychological bias of internal decision makers will influence the decision-making of equity refinancing and how? This paper consists of 7 chapters and adopts both normative and positive analysis methods; the major issues and conclusions are as follows: First of all, as indicated by the descriptive statistics obtained through calculating financial indexes of listed companies on the A share market of China, equity financing preference matters evidently. By including external long-term capital structure into the analysis scope, the enthusiasm of companies towards equity financing appears to be even stronger. Such feature of capital structure fails to gain ground in the classic capital structure theory which is the core of the Standard Finance, and differs greatly with the situation of listed companies in developed financial markets as well. Indeed, to some extent, this kind of unique equity financing preference has served as a positive impetus for the development of the Chinese capital market, yet its negative influence also brings worries about the impairment of company value on the microeconomic level and the inefficiency in allocation of market resources on the macroeconomic level. In a word, such abnormal financing bias should be restricted and corrected upon all-round study.Secondly, relevant researches on psychology and behavior have proved that the inherent psychological bias, which entices people to make decisions that deviates from the maximum value, may also plays a role in decision-making. The Chinese financial market has already experienced a booming development for over 20 years; however, generally speaking, it still remains on the improving stage. With an immature market as a background, the irrational psychological bias may interfere in economic decision-making more greatly; therefore, the Behavioral Finance better suits the problems of our country, because it is developed with the presumption that the economic main body is irrational. By comparing theoretical demonstration and reality, we believe that on the one hand, the Chinese equity market suffers obvious and frequent deviation between prices and values of equities, due to the lack of regulations and limitation of rationality of investors; as a result, internal managers of a listed company who enjoy the firsthand information can acutely seize the favorable timing for equity refinancing and make good use of it, which shows in financing behaviors as timing selection. On the other hand, the current situation of the equity market is still imperfect, for instance, the equity concentration is too intense, the fluidity of equity is too low, the proportion of state-owned equities is too large, the sponsor of state-owned equities is in vacancy, and the incentive mechanism of managers is lagging far behind, etc. Under such a circumstance, there lacks the necessary balance and supervision among shareholders, board of directors and the management team, the agency cost becomes higher, and there is no effective rules which can constrain or prevent the irrational behaviors of internal decision makers due to their cognition bias. To sum up, the irrational psychological bias of the main bodies who participate in the decision-making of equity financing both in internal and external environments influence the decisions of equity refinancing in a compulsory and evident way.In the end, we verify the influence of some irrational factors on the decision-making of equity refinancing by means of positive analysis, according to the Behavioral Finance Theory. In Chapter 5, we use the macroeconomic data of A share market from Jan 12000 to Dec 31,2010, to build a OLS (Ordinary least squares) Regression Model, on the basis of the Market Timing Theory, and the result shows that the financing timing does bring a positive influence evidently on the degree of overall equity refinancing of the A share market. While analyzing, we've distinguished the hot issue market and cold issue market by the number of IPO companies, and by designing the dumping variable HOT, we attempt to settle the possible financing timing, which depends jointly on both the market mispricing and changes in regulatory policies. In Chapter 6, we take the microeconomic data of listed companies on A share market from Jan 1,2003 to Dec 31 2010 to build the PROBIT qualitative response model on the basis of overconfidence theory of managers, and the result proves that there is remarkable positive relations between the psychological bias of overconfidence of managers and the probability that the company puts forward an equity refinancing plan. While analyzing, we've designed an overconfidence index of managers based on the surplus forecast disclosed by the company; and by taking whether the company discloses the equity refinancing plan to the market as a standard, we can determine its choice of financing means. In a word, the result of positive verification provides data support for the conclusion of theoretical analysis, explaining that the irrational psychological bias of the main bodies who participate in the decision-making of equity financing both in internal and external environments is one of the reasons for causing the equity refinancing preference. Thus, we put forward specific policy suggestions on how to improve the efficiency of resource allocation in equity refinancing behaviors.By partially referencing the past academic achievements in research mainline and method, this paper has made its own contributions mainly in the following 3 aspects:Firstly, in regard to the research object in the capital structure sphere, many of the current discussions over the decision-making of equity financing are mainly focused on initial public offering (IPO) of listed companies, or without segmenting the follow-up seasoned equity offering (SEO) after IPO; there are relevantly few researches on SEO, and even fewer has included convertible bonds into the analysis frame, for convertible bonds which play a role of "delayed equity financing" have only been emerging in recent years. This paper focuses on the decision-making of external equity refinancing of listed companies in China, on the basis of the financing method of convertible bonds, providing more specific achievements for studies in relevant sphere.Secondly, from aspect of development of overconfidence theory of managers, on the one hand, as a newly emerged theory, the currently existing achievements are mainly obtained with the research background of capital markets of developed countries; discussions based on the current situation of developing capital market of our country are not common; and hardly any scholars have use this theory to make direct study upon the decision-making of equity refinancing of listed companies of our country. This paper just makes such innovative attempt, and thus enriches the researches and achievements of this theory. On the other hand, the current mainstream opinion both home and abroad believes that managers who are featured with overconfidence tend to make equity financing cautiously, for the reason that overconfidence is an inherent psychological bias that man has; hence, relevant conclusions prove to be against the preference of equity refinancing bias existing in the Chinese market. This paper makes positive analysis by PROBIT panel model and draws completely different result that it is found out there are absolute positive relations between the behavioral bias of overconfidence of managers and the probability that a listed company decides to make equity refinancing; so to speak if we analyze from aspect of the willingness for financing, overconfident managers are more likely to make equity refinancing according to the study. Such a conclusion provides new evidence and way of thinking for us to interpret the phenomenon of equity financing preference which belongs to a unique characteristic of the Chinese equity market; meanwhile, it also provides positive data support for the conclusion of the mathematical analysis of Hachbarth (2008)Thirdly, from the research on financing issues based on market timing theory, on the one hand, as the financial markets of foreign developed countries boast higher maturity and less governmental interferences, foreign scholars seldom consider of policy factors while designing and choosing measurement indexes for the timing of financing market, instead, their only focus is on measuring the "mispricing" timing of the market which is triggered by the irrationality of investors. However, the Chinese financial market is less mature for it is just under its economic transition period, besides, regulatory policies of equity refinancing are changing on a frequent basis, bringing significant influence on the financing behaviors of listed companies; hence, this paper tries to take the policy-related timing caused by limited rational behaviors of regulators as one of the relevant index, so as to depict the decision on timing made by listed companies under specific constraints of regulatory rules in an all-round way, and thus provide valuable reference for related researches. On the other hand, the share-trading reform which began in 2005 has brought significant impact on the change of fundamental environment of the Chinese capital market; theoretically speaking, it will dramatically improve the external governance efficiency of listed companies. This paper tries to examine the influence of share-trading reform on the decision-making of equity refinancing from the level of market. Although the result appears less worth mentioning in statistical data, however, it is becomes more meaningful for offering a brand new point of view to examine the effect of share-trading reform, namely to examine whether the abnormal equity refinancing preference of a listed company can be corrected effectively by its internal and external governance mechanism after the share-trading reform.