LI Junping, XU Longbing：Mispricing, Financial Constraints and Corporate Investment

Abstract：What kind of effect mispricing has on real economy is a far-reaching question.How to measure mispricing accurately is a key problem of this question.However, people care more about the impact and the influence approach mispricing has on real economy based on accurate measurement of mispricing.Using Discretionary Accruals as the proxy variable of mispricing, this paper studies the impact and influence approach of mispricing on corporate investment according to the data of listed firms from 2000 to 2012 in China A-Share market.The results show that mispricing can improve corporate investment, but mainly to high-financial-constraint companies, not low-financial-constraint companies.Further studies find out that, for high-financial-constraint companies, overvalued stock price can relax financial constraints and increase investment through not only equity financing, but also debt financing.We also study the influence of mispricing to different ownership enterprises.The results indicate that, for private companies which face more severe financing environment, stock price overvaluation can increase investment by easing financial constraints, but there is no such effect on state-owned companies.The research of this paper shows that, stock market mispricing can promote investment and improve the allocation of resources through the way of easing financial constraints, when capital market faces serious friction and companies face high financial constraints.

Key words： Mispricing    Financial Constraints    Corporate Investment

source:Finance & Trade Economics ,No.3,2015