A Study Of The Cost Of Capital’s “anchoring Effect” On The Enterprise’s Financing Decisions

Financing decision, as one of the most important part of the corporate financial decisions, is the starting point of the enterprise funds’ chains, it usually influence the enterprise’s investment decision and dividend policy by the changes both the amount and the constitution of the financing. Adequate financing amount, can guarantee the investment activities carried out smoothly; the reasonable arrangement of the way of financing, can effectively reduce both the cost of financing and the financial risk, increase the enterprise investment’s likelihood to be successful. The financing behavior determines not only the attribution of corporate control but also the distribution order and quantity of net earnings. According to the modern financial theory, the optimal capital structure is the financing arrangements when the weighted average cost of capital lowest. During the activity of financing, the cost of capital is the primary consideration, the marginal cost of financing increase gradually along with the increasing of the scale of financing. In the numerous factors that affect corporate financing decisions, only using the cost of capital as "the anchor" to determine the scale of financing, the financing means and the capital ratios can effectively reduce both the individual financing cost and the whole financing cost, so as to realize the rationalization of the financing decision.This paper begin the theory analysis with the MM Theory, review the literatures as well, and summarize the factors that have significant impact to the enterprises’ financing decisions. This paper use the 2006-2014 financial data of China’s A-share listed companies as the research samples, analyze the distinction of the scale and the way of the financing between different years and different industries, and use different estimation method to estimates the cost of equity capital and the debt capital cost, and also the weighted average cost of capital, use the empirical method to test the relationship between the capital cost and the scale of financing, and found that the significant negative correlation between the weighted average cost of capital and the changes of financing amount, the significantly negative correlation between the debt cost of capital and the changes of the debt financing amount, and also the significant positive correlation relationship between the equity capital cost and the changes of the equity financing amount, the results can be explained by the actual situation of China’s capital market that whether an issue be succeed and the amount of an issue are usually be seen as an assessment to the management, under this consideration, the management have to consider that assessment more than the cost of the equity.