Skip to main content
Frontiers of Business Research in China
Download PDF
  • Research Article
  • Published:

Non-circulating equity and excessive equity financing

Frontiers of Business Research in China volume 1, pages 422–436 (2007)Cite this article

Abstract

In the Chinese stock market, the price of exchangeable stock is determined by the discounted future uncertain cash flow, while the price of non-circulating stock depends on per book value. In general, because investors holding non-circulating equity maintain the control power, corporate finance and investment decisions reflect their interests. The pricing mechanism of non-circulating stock violates the basic pricing principle of the capital market. Therefore, corporate finance decisions deviate from the NPV (net present value). As a result, excessive equity financing problems would occur in the listed companies.

摘要

中国股市中, 流通股的价格取决于公司未来不确定现金流期望值的折现: 非流通股的价格则依据每股净资产来制订。 通常非流通股股东拥有公司的控制权, 因此公司的投融资决策体现了非流通股股东的利益。 非流通股的定价制度有违资本市场对资产定价的基本原理, 所以公司的投融资决策也偏离了公司财务理论所确定的净现值标准, 导致上市公司存在过度股权融资问题。

References

  • Bai Chong-en, Li Shan (2000). Capital structure and product market strategy. Annals of Economics and Finance, (1): 383–402

  • Chen Xiao, Shan Xin (1999). Does debt financing increase the cost of capital of listed company? Economic Research Journal, (9): 13–17

  • Harris M, Raviv A (1988). Control contests and capital structure. Journal of Financial Economics, (20): 55–86

  • Huang Haigui, Song Min (2002). Capital Structure of Chinese Listed Companies. Shanghai: Fudan University Press

    Google Scholar 

  • Huang Shao’an, Zhang Gang (2001). Analysis of equity issue preference of Chinese listed companies. Economic Research Journal, (11)

  • Israel R (1991). Capital structure and the market for corporate control: The defensive role of debt financing. Journal of Finance, (46): 1391–1409

  • James B, Lewis T (1986). Oligopoly and financial structure: The limited liability effect. American Economic Review, (76): 956–970

  • Jenson M C, Meckling W H (1976). Theory of the firm: Manager behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4): 305–360

    Article  Google Scholar 

  • Li Leixun, Xu Lingfeng, Lin Bin, Yu Yang, Cao Yongzhi, Zheng Xuezhang, Zhang Wenxian (2000). Re-issue and Supervision of the Listed Companies. Report of the First Stage Study for the Joint Research Project with Shanghai Securities

  • Liu Zhibiao, Jiang Fuxiu, Lu er’po (2003). Capital structure and product market competitiveness. Economic Research Journal, (7): 60–67

  • Modigliani F, Miller M H (1958). The cost of capital, corporation finance and the theory of investment. The American Economic Review, (48): 261–297

  • Myers S C, Majiluf N S (1984). Corporate financing and investment decision when firms have information that investors do not have. Journal of Financial Economics, (13): 187–221

  • Pei Ping (2000). Equity Issue of Chinese Listed Companies. Nanjing: Nanjing University Press

    Google Scholar 

  • Shen Yifeng, Tian Jing (1999). The quantidty research on the cost of capital of chinese listed companies. Economic Research Journal, (11): 62–68

  • Singh A, Hamid J (1992). corporate Financial Structures in Developing Countries. International Finance Corporation Technical Paper. No. 1 IFC, Washington, DC

  • Stulz R (1988). Managerial control of voting rights: Financing policies and the market for corporate control. Journal of Financial Economics, (20): 25–54

  • Tan Jun, Wu Linxiang (2002). The empirical analysis of the public offering effect. Shanghai securities news, Sep. 16th

  • Wan Chaoling, Chu Chengzhong, Li Xiang, Yuan Ye, Zhou Jianxin (2002). Study on outside capital sources for listed companies: An empirical study on their capital structure and financing cost. Report of the Third Stage Study for the Joint Research Project with Shanghai Securities

  • Wu Shukun (2003). Economic analysis of the majority shareholder’s behaviors. Chinese Securities Study, (2): 22–32

  • Zheng Jianghuai, He Xuqiang, Wang Hua (2001). Financial constraints in the listed companies investment: Explanation from the views of structure of equity. Journal of Financial Research, 257(11): 92–99

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Room 2-101, Building 18, Renhe Quarter, Kaifeng, 475001, China

    Zheng Zuxuan

  2. Guanghua Management School, Peking University, Beijing, 100871, China

    Zhou Ye & Li Da

  3. Henan University, Kaifeng, 475001, China

    Zhao Tao

Authors
  1. Zheng Zuxuan
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Zhou Ye
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Li Da
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Zhao Tao
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Zheng Zuxuan.

Additional information

Translated from Shijie Jingji Wenyuan 世界经济文源 (World Economic Forum), 2004, (4): 41–50

Rights and permissions

Reprints and permissions

About this article

Cite this article

Zheng, Z., Zhou, Y., Li, D. et al. Non-circulating equity and excessive equity financing. Front. Bus. Res. China 1, 422–436 (2007). https://doi.org/10.1007/s11782-007-0025-9

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11782-007-0025-9

Keywords

关键词