Chinese Listed Companies Financing Implement Selection on Heterogeneous Beliefs among Investors

A new model is presented to reveal investor heterogeneous beliefs impact on corporate financial decision, using demand-supply curve in the framework of the sequence of events. Our model theoretically interprets the phenomenon that firms issue equity in high stock price, inconsistent with Trade-off Hypothesis and Pecking order Hypothesis. This paper also tests theoretical predictions sampling A-shares listed firms on SHSE and SZSE, adopting Probity regression. The results indicate that the greater the heterogeneous beliefs among investors, the more likely the firm are to choose to issue equity rather than debt in China. In the meantime, the difference of heterogeneous beliefs between equity issuers and debt issuers is wider in China compared with American market, which is attributed to the structure of investors and short sale restriction.