Open Access

Non-circulating equity and excessive equity financing

Frontiers of Business Research in ChinaSelected Publications from Chinese Universities1:25

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

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.

Keywords

non-circulating equityexcessive equity financingnet present valueChinese stock market

Notes

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