The Impact of Equity Refinancing Methods of Technology Listed Companies on Stock Price Volatility

Based on GARCH model

Abstract

Current research on equity refinancing primarily focuses on the analysis of equity financing preferences and causes, the cost of equity financing, and the efficiency of equity financing. However, there is a notable gap in research concerning the volatility of stock returns and the associated risks of equity refinancing. This paper addresses this gap by describing the theory of refinancing as established by previous scholars and focusing on two common types of equity refinancing: share placements and issuances. The study investigates the impact of these refinancing methods on the volatility of stock returns for A-share listed technology companies in China. For the sample selection, this paper uses the daily closing prices of several A-share technology-listed companies in 2020 that adopted share issuances or allotments. It emulates the compilation method of the CSI 300 index to create a refinancing technology index as a variable and employs the GARCH model for empirical analysis. This approach allows for an examination of how the volatility of stock returns changes under different equity refinancing methods. The empirical analysis leads to the following conclusions: 1.Both share issuances and allotments affect stock prices increase the volatility of stock returns;2.The impact of allotments on stock return volatility is relatively small compared to that of share issuances, which cause more dramatic changes in stock prices.3.Equity refinancing has a significant short-term positive impact on the volatility of stock returns, with the effect of share issuances being greater than that of share allotments.