Translated Abstract
Chinese firms face more constrained financial resources in the areas of market economies, performance, and competitive advantage (Peng and Heat, 1996). China Security Regulation Commission (CSRC)’s regulations and bureaucrats have more power than the developed market, then, to favor some firms and discriminate against others by influencing their access to sources of capital. China’s regulatory regime restricts Chinese firms in their ability to obtain funds through the financial markets. Its regulations define which firms can access different sources of financial capital. The eligibility to issue securities by listed firms in China is regulated by the CSRC. Firms have to obtain the regulatory approval before they can issue equity and debt securities. Since the regulator defines which firms have the capacity to issue securities, China provides a unique setting to study the relation between external financing capacity and stock-price performance. Private equity funds have also taken a strong position in Chinese equity market particularly after the CSRC started regulating private equity placements (PEPs) in 2006. PEP is less regulated than other two forms of equity financing method namely right and public offerings.First, this dissertation examines the relation between the capacity for financing through rights and public offers of equity and subsequent stock returns using a unique and comprehensive dataset of listed firms in China for the time period from 2000 to 2010. This study differs from previous research on financing activities and stock returns in that we focus on the impact of the capacity to raise equity rather than the actual issuance of equity on stock-price performance. Second, this dissertation investigates whether announcements of the private equity placement application, withdrawal, rejection, approval, and completion affect stock-price performance of PE issuing firms. Third, we also examine the factors that impact the announcement effect on private equity placement events by examining the cross-sectional differences in stock-price performance. Forth, we investigate impact of market reaction to the announcements of the private equity placement application, withdrawal, rejection, approval, and completion of competitor firms in the industry, while examining the cross-sectional differences of the market performance of competitors both in the short and long run.We find that the capacity for rights and public offering of shares is strongly negatively related with future returns for firms that meet regulatory criteria. Further, the capacity for rights offers is strongly negatively related with returns for firms that met the regulatory criteria and applied, and for firms that issued equity after meeting regulatory criteria and obtaining approval. The results are consistent with existing literature as well as agency, signaling, and earnings-management explanations of the relation between equity issuance and stock returns. Further research is necessary to discriminate among alternative explanations for the observed relations.Next, the results show that issuing firms experience an increase in stock prices in response to announcements of application, approval, and completion of private equity placements and no affect around the announcements of withdrawal or rejection of applications. The announcement effect is positively related with market discount, proceeds from private placements and institutional buying, and negatively related with government buying. Further, Announcement effect is positively related to change in ownership concentration of corporate institutional investors and negatively related with changes in ownership concentration of management buyers. The positive announcement effects of private equity placements can be explained by both information and ownership structure changes. Finally, we find that competitors experience a decrease in stock prices in response to announcements of application, approval, and completion of private equity placements and increase in stock prices around the announcements of withdrawal or rejection of applications, suggesting evidence of competitive effects in the short-run. Competitors experience an increase in the long-term stock performance following private placements consistent with contagion effects in the long-run.This dissertation includes five innovations and extends the existing literature. First, we examine the relation between equity financing capacity and stock returns, which has received very little attention in the empirical finance literature. More importantly, our study is based on a unique setting where the capacity to issue equity and debt to the public by firms listed in China is determined by the securities market regulation. We specifically examine whether the capacity to make rights and public offerings of equity is priced in the market in terms of future returns. We able to enrich the existing literature on financing behavior and stock returns by showing how equity financing capacity is related to stock returns in a highly regulated emerging capital market. Second, we also investigate how actual equity financing affect stock return. We find that unqualified firms also got approval from CSRC. Hence, we study effect both qualified and unqualified firms issued equity on stock return. Previous studies of equity financing and stock returns do not consider this aspect and they study equity issuing firms as one pool sample. Our study, we separated this pool sample into two categories: qualified and unqualified-issued equity and investigate regulations effects. Hence, enriched the existing literature on financing behavior and stock-price performance by showing how qualified and non-qualified equity issuings are related to stock returns in a highly regulated market. Third, we investigate whether announcements of the private equity placement application, withdrawal, rejection, approval, and completion affect returns of Private Equity issuing firms. This information comes to the market time to time. Previous studies have investigated issuing firms‘ announcing effect only and they did not consider other important events of Chinese equity finance regulation process. Our study is more comprehensive than previous studies. Hence, we able to fill this research gap and enrich the existing literature on financing behavior and stock returns by showing how important events of Chinese equity regulations affect stock-price performance. Fourth, previous Chinese private equity financing studies does not cover the long-run stock-performance of private equity issuing and competitor firms and don’t observed that spillover effect relevant to PEP in China. Fifth, private equity offering could affect non-issuing (competitor) firms’ stock performance. According to best of our knowledge, there is no study about effect of private equity offering on non-issuing (competitor) firms in Chinese context. This study is innovative due to inclusive of institutional backgrounds and regulation incorporated. Our findings are contrast to the study of Hsu, Reed and Rocholl (2011) in long-run. We able to enrich the existing literature on private equity financing behavior and stock-price performance of competitor firms in Chinese context. Our results provide important insights for the investors, issuing and competitor firms, and security market regulators.
Translated Keyword
[Equity financing capacity Private Equity Placement Public offering Rights offering Stock returns]
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