Corporate Equity Financing Preference Analysis

The preference of corporate finance has always been the focus of the capital market. Scholars from the West argue that firms will act on the strict Pecking Order of the internal financial slacks, the secure debt, and the external risky debt when they have to finance funds from the market. The mainstream of domestic research believes that the Pecking Order is a universal result, so is the equity preference for Chinese listing companies. With this background this paper focus on the equity preference of corporate. This paper includes five chapters. The first chapter introduces the background, the method and the new ideas in this paper. The second chapter summarizes theories, including MM theorems, the trade off theory and the Pecking Order theory；And empirically compares the preference of equity financing. The detailed statistics and analysis results show that there is apparent equity preference for companies either in America or in China. Compared to the U.S. listed corporate, the performances of the Chinese listed corporate showed no any significant differences.The third chapter empirically measures the equity cost. We use the F-F three factors CAPM model creatively and get the suitable Chinese model of equity cost measurement. The forth and fifth chapter and are the explanation of the phenomena, as the special character of rational cost, risk averse, induces the debt market to "credit rationing". This rationed debt cannot disclosure the real debt level and the correct debt cost, like the price cannot represent the cost in a planned economy. There are also some special characters that lead to equity preference in China.