Heterogeneous Beliefs and Corporate Financial Decision

A new model is presented to reveal investor heterogeneous beliefs impact on corporate financial decision, using marginal analysis method in the framework of the sequence of events. Our model theoretically interprets the phenomenon that firms issue equity in high stock price. This paper also tests theoretical predictions sampling China A-shares listed firms. The result of Chinese financial market provides that the probability of a firm issuing equity rather than debt is increasing in level of heterogeneity of investor beliefs, as well as investor sentiment.