When Equity Tightens but Debt Does Not Rise: IPO Restriction, SOE Dominance, and Capital Structure in China

This paper examines whether the contraction in equity financing was offset by an expansion of bond financing during the tightening of IPOs in China. According to the prediction of the pecking order theory of Myers and Majluf (1984), when the cost of external equity financing rises, firms will turn to debt financing, so equity financing and bond financing should present a substitution relationship at the aggregate level. However, in the Chinese capital market, the issuers of the stock market do not overlap with the issuers of the bond market. Whether the prediction of the pecking order theory holds in China has received limited direct testing at the macro flow level. This paper uses monthly data from January 2012 to December 2024, with a total of 156 observations. The data are drawn from the People's Bank of China's social financing statistics, the Wind bond issuance database and the Wind IPO database. This paper takes Net Corporate Bond Financing as the dependent variable, and runs a single-equation linear regression of Net Corporate Bond Financing on Equity Financing Volume, SOE Issuance Share, Monthly IPO Count, and the Post-August 2023 Policy Indicator. The policy indicator takes the value of one from September 2023 onward to mark the discrete break introduced by the China Securities Regulatory Commission's "827 New Policy." The regression uses Newey-West HAC standard errors with a lag order of six, and a first-difference specification is reported as a robustness check. The empirical results do not support the substitution prediction at the aggregate level. The coefficient on Equity Financing Volume is positive and insignificant (β = 0.969, p = 0.183). The coefficient on the Post-August 2023 Policy Indicator is negative and significant at the 1% level, indicating that average monthly net bond financing declined after the policy. The coefficient of the Monthly IPO Count is also negative and significant. Read jointly, this set of estimates is consistent with equity and bond financing contracting in the same direction within the same window, and does not support the interpretation that the two types of financing instruments substitute for each other. SOE Issuance Share averages 87.6% across the sample period, with a minimum value of 70.6%, but its variation in the time-series dimension is too narrow to be precisely identified in the regression. The paper introduces SOE Issuance Share as an explicit measure of bond market ownership composition.