Abstract:
Mispricing can affect corporate investment, especially to high-financial-constraint companies. Then,as the basis of investment, is there any difference for the influence that mispricing has on financing decisions between different financial-constraint companies? Using the data of listed firms in China A stock market from 2000-2013, this paper studies the effect of mispricing on the selection of financing methods of different financial-constraint companies. The results show that, for equity financing, regardless of financial constraints level, mispricing has a significant positive effect on companies’ equity financing. For debt financing, overvaluation can significantly promote high-financial-constraint companies’ debt financing, including long-term debt and short-term debt financing, but mispricing has no significant impact on low-financial-constraint companies’ debt financing. Meanwhile, we also find that the positive effect of mispricing on short-term debt financing of high-financial-constraint companies is much higher than that of long-term debt financing. The research of this paper shows that, in China's capital market, mispricing has significantly different effect on financing choice of different financial-constraints companies. For high-financial-constraint companies, financing choice shows a pecking order of equity financing, short-term debt financing and long-term debt financing. However, there is no such kind of phenomenon for low-financial-constraint companies.
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