A Study On Market Timing In The Private Placements Of Listed Companies In China

The aim of this study is to use market timing theory to explain Chinese listed Corporation’s private placement behavior. And use case study to acknowledge more deeply of market timing behavior in private placement, thus enrich the study on market timing selection in private placement.Private placement is the most selected pattern to satisfy companies’financing needs. Nowadays, study on private placement focus on discount, announcement effect, earning planning, benefit transportation etc. With the development of securities market, the traditional finance theory cannot explain the financing behavior of enterprises, growing numbers of scholar begin to use market timing theory as a new perspective in order to better understanding the behavior of companies’ financing. This paper use case study method and based on actual situation. Firstly, summarizing existed literature on market timing and finding out what timing may listed company may choose. The possible choices are market development, market wrongly priced, capital cost and policy regulation etc. This paper try to detect what is the important timing for companies through specific case.Secondly, previous studies on private placement timing behavior found that listed Corporation use different discount on different issuing objects. If issuing objects is the controlling shareholders, listed Corporation tend to issuewhen the stock price was relatively low in the past6-12months. Then the controlling shareholderswill get big discount. Butif the issuing objects is none controlling shareholders, listed Corporation will tend to issue when the stock price was relatively high in the past6-12months. Therefore, whether the issuing objects were determined in the resolution of the board of directors or not will be of great deal. What market timing will the company choose when it use competitive bidding method. This will be discussed through specific case.This paper find that market development, market wrongly priced, and policy regulation are the most important timing when Chinese company decide to issue private placement. The financing behavior of China’s listed Corporation is easily affected by external environment, Capital cost and capital structure are less considered. Listed Corporation will also termination or implementation the private placement according to the market changes, which is obvious tendency of timing. It is also found that, when company adopts competitive bidding method issue, it will choose limited issue price which is good for issue object, no matter not knowing whether the final objects will be controller shareholders or not. Finally, based on the phenomenon found, this paper make suggestions from government supervision and enterprises, to standardize the financing behavior of China’s listed Corporation.The past study of timing research on private placement were mainly empirical research and rarely case study. Through specific case we could identify and know more clearly how the company choose timing. But a specific case has certain limitation, and may not represent the whole number of Chinese company.