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Non-circulating equity and excessive equity fi nancing |
| ZHENG Zuxuan1, ZHOU Ye2, LI Da2, ZHAO Tao3 |
| 1.Room 2-101, Building 18, Renhe Quarter, Kaifeng 475001, China; 2.Guanghua Management School, Peking University, Beijing 100871, China; 3.Henan University, Kaifeng 475001, China; |
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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.
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Issue Date: 05 September 2007
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