| Since MM theory was proposed, the corporate financing has become an essential research topic in the field of corporate finance. Information is an important factor not only in affecting the behavior of corporation, but also in the asset price discovery. Traditional economic theory suggests that price is the result of market-clearing when supply equals to demand. This ignores the impact of market microstructure factors like market trading mechanism etc. on price. Market microstructure theory holds that there are transaction costs, trade frictions and information asymmetry in the financial market and the difference in market mechanism will have an influence on pricing. Information asymmetry exists widely in the security market, not only between managers and investors, but also among investors. According to the information superiority, investors can been divided into informed traders and uninformed traders. The market microstructure theory focuses on the information asymmetry between the informed investors and uninformed investors. Thus, this article studies the financing behavior of China’s listed companies on the basis of information asymmetry of the market microstructure theory perspective and it attempts to discuss the relationship between market microstructure theory and financing behavior.The market microstructure theory involves the trading mechanism of capital markets, capital liquidity and information asymmetry etc., thus, there is a close relationship between the financing behavior and market microstructure. On the basis of amendment of classic EKOP model, the PIN (Probability of Informed Trading) has been obtained which can be used to measure information asymmetry. Using this indicator, the article discusses and verifies the impact of asymmetric information on the financing behavior of listed companies from internal financing, equity financing and financing structure systematically.Firstly, the impact of information asymmetry on the internal financing decision is discussed under the perspective of the market microstructure theory. Internal financing includes corporate depreciation and retained earnings. Ignoring depreciation, choice about the earnings has to been made between distributions and retained, which will determines the level of internal financing. Dividend policy is the approach of earnings distribution, so it can be regarded as an internal financing decision as well. Because of the requirement on the dividend distribution which is often involved in the relevant policies about the financing formulated by China Securities Regulatory Commission, dividend policy always subordinate to financing. A dividend policy signaling game model has been built to analyze the internal financing decision from the point of view of dividend policy. It is a3-period model including investors, market makers and companies, which analyzing the degree of information asymmetry between informed traders and uninformed traders and the influence of their strategies on the companies’dividend policies under both the perfect and noise information the informed traders get. Using the amended measurement of information asymmetry, event analysis and weighted least squares method have been employed to confirms that the higher the degree of information asymmetry between investors, the weaker the role of dividend increasing signaling is; for the unexpected dividend announcement, the degree of information asymmetry before dividend announcement is higher than it after dividend announcement. It means that information asymmetry will affect the dividend policy. However, the dividend policy determines the earnings distribution level of the investors as well as the amount of internal financing available to the corporation, thus information asymmetry has an impact on the internal financing behavior of the corporation as well.Secondly, the article discusses the impact of information asymmetry on equity financing decisions from the perspective of market microstructure theory. The listed companies take the financing cost into consideration firstly when making financing decision. Therefore, the article considers the equity financing issue mainly from the perspective of the cost of equity financing. On the basis of the rational expectations equilibrium model of Easley, Hvidkjaer and O’Hara, the article examine the impact of information asymmetry on the cost of equity financing after introducing the information cost. Under the premise that the investors have to pay the cost to become the informed traders, the model analyzes the behavior of informed traders and uninformed traders as well as the impact of the proportion of private information on the cost of equity financing. Gebhardt, Lee and Swaminathan’s model has been used to measure the cost of equity financing, while amended probability of informed trading has been used to measure the information asymmetry. The deduction has been confirmed by the panel regression analysis that the higher the degree of information asymmetry between investors is, the higher the cost of equity financing is.Thridly, a research about the impact of information asymmetry on financing structure has been conducted in the market microstructure theory as well. A test has been done about the financing structure of the listed companies in China on the improved Pecking Order model, which infers that China has equity financing preference. Based on the amended probability of informed trading to measure the information asymmetry and the FM regression method, it is found that information asymmetry is a key factor affecting the financing structure of Chinese listed companies. If there is a difference in the degree of information asymmetry between the companies, the proportions of debt financing in the financing structure of the firms are also different. Companies prefer to debt financing when information asymmetry is higher.Eventually, suggestions have been made about how to reduce negative effect of information asymmetry between investors on corporate financing decisions. |
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