Financing Constraints And Equity Volatility

The financing channels of Chinese enterprises are relatively single,the financial instruments are not rich enough,and the financing 'options of enterprises are limited.In terms of equity financing,the listing threshold of enterprises is relatively high,and the CSRC has set relatively strict refinancing qualification,making it difficult for enterprises to obtain funds through equity financing.In terms of debt financing,China's bond market is not developed enough,so it is difficult for enterprises to raise funds by issuing bonds.Bank credit has become the main source of financing for Chinese companies,and Banks prefer to provide mortgages for fixed assets rather than funding non-physical assets such as innovation and research.Carvalho(2018)studied enterprise holding property value's improvement due to the rising house prices which relax the financing constraints and found that the real estate holding value that relax financing constraint increased the enterprise stock return volatility,and through further study found that the influence is through growth options,and R&D is main way to obtain growth options,so the financing constraint relaxtion of R&D intensive enterprise has more significant effect on volatility in the stock yield increasing.Previous research has shown that corporate fundamentals can help explain stock yield volatility.Basu(1977)put forward that the stock yield of listed companies with high P/E ratio is lower than that with low P/E ratio.In the three-factor model proposed by Fama-French(1993),scale effect and book-to-market ratio are considered as two other factors that affect stock return besides market portfolio return.Return on assets and corporate leverage are also important factors affecting stock return volatility.But our understanding of the underlying economic factors that determine the level of stock volatility remains limited.This paper mainly studies the impact of financing constraints on stock return volatility.From the perspective of the impact of changes in the value of real estate assets caused by fluctuations in housing prices on financing constraints,an empirical study was carried out according to the conclusion of C.arvalho(2018)that the less financing constraints enterprises are subject to use growth options,the higher the stock volatility may be.Based on the samples of A-share and GEM listed companies listed in Shanghai and Shenzhen Stock Exchange from 2007 to 2017,the following research is completed by means of instrumental variable method and multiple linear regression model according to the above logic.First,risk exposure to real estate cycle is different in different regions.This paper makes use of the difference of per capita urban construction land in different regions of China to construct the impact tool of national real estate price on local real estate price.Secondly,this paper combines these local real estate shocks with the existing differences of real estate exposure in each company's balance sheet to evaluate the impact of shocks on the value of the company's real estate assets.It then studies whether the increase in the value of real estate held by companies significantly causes fluctuations in the return on their shares,and tests whether this effect is transmitted through the growth option channel by studying a subsample of R&D intensive companies divided by R&D investment intensity.Through the study,it is found that the impact of the value of corporate real estate holdings will lead to the increase of stock return volatility.In addition,the empirical results of this paper show that the impact of the holding value of corporate real estate will lead to the increase of stock return volatility,which is also related to the reduction of corporate market leverage,but not related to the higher subsequent cash flow volatility.And through the definition of R&D intensity group empirical research found that R&D intensive enterprises increase volatility is driven by the relaxation of financing constraints(real estate asset value impact).These results all indicate that the impact of real estate holding value on enterprises will lead to the increase of stock return volatility,which is driven by the growth option channel.The continuous impact of real estate asset value on stock return volatility of large enterprises and non-R&D intensive enterprises is not significant.To sum up,the research results show that in R&D intensive enterprises and small and medium-sized enterprises with a large number of real estate assets,the relaxation of financing constraints caused by the rising real estate prices held by them may be an important determinant of the rising volatility of corporate stocks.By studying the impact of the change in the holding value of real estate for R&D intensive enterprises on stock return volatility,this paper proves that an important economic determinant of the increase in stock volatility of R&D intensive enterprises is the reduction of financing constraints caused by the rise in real estate prices.This article research results to isolate the cause of a potential determinant of company stock returns volatility:the company because of increased real estate worth reduce financing constraints,this factor by changing the enterprise investment decision-making(increase R&D)to make a growth option ability enhancement to affect stock returns volatility,and verify it for different types of company stock return volatility's differences:for small and medium-sized enterprises and R&D intensive effect and large enterprises and the development of intensive effect is not obvious.The results of this paper provide evidence for the mechanism by which financing constraints affect stock fluctuations of enterprises and show that such effects are concentrated in R&D intensive enterprises.