Empirical Study on Equity Mispricing and Market Timing Behaviour of Equity Financing

Based on the hypothesis about irrational market would induce the equity mispricing, we forming a mispricing index to measure equity misevaluation, an empirical study of the panel data of Dow Jones China 88 from 2000 to 2004 is carried out to explore the relationship between equity mispricing and timing of equity financing. Research finds that, by controlling the other variables, equity mispricing index has a negative impact on selection of corporate capital structure. The higher the equity is overvalued, the more likely the corporate choose equity financing; corporate with intense capital structure constraint are more likely choose debt financing, which indicates that there is market timing behaviour of equity financing in Chinese blue chips.