Soft Budget Constraints Of State-owned Listed Companies Financing

The target of reform of state-owned enterprises (SOE) is to change them into real modern enterprises. The main path is to rebuild them as stock companies and come into the market. However, there is doubt that rebuilding SOE into stock companies and keeping the controlling status of the state can make the SOE into modern enterprise. This present thesis studies the above-mentioned problems by analyzing the characteristics of financial behavioral of state-owned listed companies and measure the degree of soft budget constraint (SBC) .The domestic popular standpoint argues that China's listed companies lean to finance with equity. Differentiating from the prevail viewpoint, the thesis makes the point that China's listed companies prefer debt (especially bank loans) to equity. We think that the financing preference of listed companies is closely relevant with their ownership structure. The ownership structure is characterized by state-owned shares dominating singly and artificially division between circulating shares and non-circulating ones. Such particular equity structure results in that state-owned listed companies still preserve the financing preference of traditional SOE.The present thesis theoretically analyzes the financing tendency of every actor that is interests concerning. Apart from that, we build empirical models according to various industries based on relative data of the listed companies from year 1990 to 2001. The results show that in most of industries the ratio of state-owned shares is evidently positively relevant to the ratio of debt to asset of listed companies. Moreover, many domestic empirical researches indicate that the ratio of debt to asset is remarkably negatively relevant to the performance in the listed companies, which is on opposition compared with the western countries. The ultimate reason is that sate-owned listed companies are none the less struck by SBC, and the state-owned banks do not realizecommercialization. The ownership relation among "listed companies--state-owned banks--government" keeps unchanged. Hence, stated-owned listed companies can more easily obtain soft capital from state-owned banks.It can be seen that the way that rebuilding the SOE as the stock companies and then listing can not change the SOE into real modern enterprise. SBC still exists in State-owned listed companies. The SBC in the sectors of state-owned economy not only makes SOE lack of competition promoting and be deficient, but also lead to a great number of non-performing bankloans, which may cause tremendous risk of finance crisis in the national economy. Consequently, according to the demand of deficit property rights, it is put forward that the shareholders of SOE must be multiplicity to change them into genuine modern enterprises; the share-controlling status of the nation in the corporations and introduce private investors should be abolished. On the other hand, according to the demonstration, listing the state-owned banks is not a smooth way, and after listing the state-owned banks will probably face the problem of SBC and bad assets. As the reform of SOE, the key in commercial reform of national banks lies in innovating ownership and making their budget constraint hard.