Equity financing capacity and stock returns: Evidence from China |
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| Authors: | MM Fonseka Lalith P Samarakoon Gao-Liang Tian |
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| Institution: | 1. School of Environmental and Nature Resources, Renmin University of China, Beijing 100872, China;2. Arizona State University, Morrison School of Agribusiness and Resource Management, 7231 E. Sonoran Arroyo Mall, Mesa, AZ 85212, USA;3. University of International Business and Economics, School of Banking and Finance, No. 10, Huixin Dongjie, Chaoyang District, Beijing, China;1. Manchester Business School at the University of Manchester, Manchester, M15 6PB Manchester, United Kingdom;2. Owen Graduate School of Management at Vanderbilt University, Nashville, TN 37203, United States;3. Wisconsin School of Business at the University of Wisconsin–Madison, Madison, WI, United States;4. Adam Smith Business School at the University of Glasgow, Glasgow, G12 8QQ, United Kingdom;5. U. S. Securities and Exchange Commission, United States;1. Professor, Graduate Institute of Business and Management, College of Management, Chang Gung University, Taiwan;2. Adjunct Professor, Department of Industrial and Business Management, College of Management, Chang Gung University, No. 259, Wenhua 1st Rd., Guishan District, Taoyuan City 33302, Taiwan;3. Adjunct Research Fellow, Division of Cerebrovascular Disease, Department of Neurology, Linkou Chang Gung Memorial Hospital, Taiwan |
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| Abstract: | We examine the relation between the capacity for financing through rights and seasoned public offers of equity and subsequent stock returns in China. The results show that the capacity for rights and public offers is reliably negatively related with future returns for firms that met regulatory criteria. Further, the capacity for rights offers is strongly negatively related with returns for firms that met the criteria and applied for approval, and for firms that issued equity after meeting the criteria and obtaining approval. Thus, there is clear evidence of a negative relation between equity financing capacity and stock returns in China. |
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