The impact of refinancing on long-run performance: Evidence from Chinese public utility listed companies

Abstract

Many issues have emerged currently regarding refinancing as a main financing source of Chinese listed companies, and the proper use of refinancing by public utility listed companies concerns the sound development of public utilities sectors and the smooth progress of related infrastructure in China. This paper sought to optimize the capital structure from an incremental perspective by measuring the impact of refinancing on the long-run performance of the company. More specifically, this study incorporated three refinancing vehicles (i.e. second equity offerings (SEOs), issuing ordinary bonds and issuing convertible bonds) with 110 companies listed on A-share stock market. By vertically comparing the performance of the company before and after refinancing and horizontally comparing the performance of the company with the average level of the industry, this study found that the companies using equity refinancing mode (i.e. SEOs and issuing convertible bonds) performed significantly worse after refinancing, and the companies issuing ordinary bonds significantly outperformed their peers although their performance indicators changed little. These findings are similar to those of research on Chinese stock market as a whole.