SELECTIVE ASYMMETRIC CAPITAL FINANCING BEHAVIOR: PREFERENCE TOWARDS EQUITY FINANCING

Donald Lien (), Melody Lo () and Jinlan Ni ()
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Donald Lien: College of Business, University of Texas at San Antonio, San Antonio, TX 78249, USA
Melody Lo: College of Business, University of Texas at San Antonio, San Antonio, TX 78249, USA

Annals of Financial Economics (AFE), 2012, vol. 07, issue 01, 1-29

Abstract: Using data from 1,217 publicly traded Chinese companies from 1994–2006, we show that the capital financing behavior of Chinese firms deviates substantially from the pecking order theory in that equity issues are always the preferred financing source for funding requirements. We further document the existence of a stylized asymmetric financing pattern — equity issues are used much more heavily over debt issues under the condition of a fund flow surplus versus a fund flow deficit, which is the result of Chinese firms selecting the degree of inherent equity-issue preference feasible to pursue given their fund flow condition.

Keywords: Capital financing choices (or preference); equity financing; financing hierarchy; pecking order theory; JEL Classification: G32 (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1142/S2010495212500042

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