An Empirical Study on Financing Cost for Equity Financing vs. Debt Financing of China's Listed Companies

This paper conducted an analysis of financing cost for debt financing and equity financing after initial public offering of China's listed companies. We found that firms' initial market capitalizations and the industry they belong to are the major factors that affect the value of firms' final market capitalization. So we select listed companies in home durable industry and apparel industry, and compare the matching companies in the same industries. We found that from shareholder's perspective, the financing cost of debt financing is lower than that of equity financing. The main reason is that the soft restriction of equity financing often leads to poor performance, and the market capitalization then goes down after seasoned equity offerings.