The determinants behind Chinese companies' incremental equity issue decisions

This paper studies the determinants behind Chinese companies' decisions to make seasoned equity offerings (SEO). Probit regressions are employed and a Monte Carlo simulation method is used to confirm the non-existence of the spurious correlation problem found in traditional models of capital structure. Evidence is found to confirm the privilege of state-controlled enterprises to access equity. A corporate governance indicator based on the completion of the Split Share Structure Reform is also introduced. However, no evidence to support the importance of corporate governance is found. The results of this study imply that in a country where the state dominates the intermediation of capital, investors and thus companies are less sensitive to the quality of corporate governance. Different factors have been observed to affect Chinese firms' SEO decisions prior to and post the Split Share Structure Reform. The influence from the state has also been weakened after the reform, particularly after the global financial crisis.