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Selective Asymmetric Capital Financing Behavior: Preference Towards Equity Financing

Author

Listed:
  • 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)

  • JINLAN NI

    (College of Business, University of Nebraska at Omaha, Omaha, NE 68182, USA)

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.

Suggested Citation

  • Donald Lien & Melody Lo & Jinlan Ni, 2012. "Selective Asymmetric Capital Financing Behavior: Preference Towards Equity Financing," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 7(01), pages 1-29.
    • Handle: RePEc:wsi:afexxx:v:07:y:2012:i:01:n:s2010495212500042
    DOI: 10.1142/S2010495212500042
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    References listed on IDEAS

    as
    1. Myers, Stewart C., 2003. "Financing of corporations," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 4, pages 215-253, Elsevier.
    2. Mayer, Colin, 1989. "Myths of the West : lessons from developed countries for development finance," Policy Research Working Paper Series 301, The World Bank.
    3. Singh, A. & Hamid, J., 1992. "Corporate Financial Structure in Developing Countries," Papers 1, World Bank - International Finance Corporation.
    4. Singh, Ajit, 1994. "Corporate financial patterns in industrialising economies: a comparative international study," MPRA Paper 54936, University Library of Munich, Germany.
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    More about this item

    Keywords

    Capital financing choices (or preference); equity financing; financing hierarchy; pecking order theory; JEL Classification: G32;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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