A Study On The Impact Of Bank Supervision On Corporate Financial Constraints

Financing constraints is a common problem in developing countries. At present, China is in the stage of economic transition, In terms of China’s econom-ic development, financing constraints have become an important problem which restrict the economic transformation and upgrading, how to effectively ease the financing constraints of enterprises has become one of the hot topics in the theo-retical circle and the academic circle. Because of China’s securities market is still not perfect, the enterprise financing mainly rely on bank loans. Bank monitoring can reduce agency costs and information asymmetry degree of between lenders and borrowers, thereby alleviating financing constraints of the enterprises. How-ever, different from the mature market economy of western, China’s enterprises face special institutional constraint in the economic transformation. Therefore, the research about bank monitoring and financial constraints must consider the background of specific contract system in China.Comprehensively using the new institutional economics, law and finance, the incomplete contract theory and game theory, the article constructs the optimiza-tion model which contains contracts, bank monitoring and financial constraints, discusses the relationship between contract system, bank monitoring and enter-prise financing constraints, and make an empirical test to the conclusions of the theoretical model. This article mainly discuss the effect of contract system on corporate financing constraints, and effects of corporate financing constraints in different contracts system under the bank monitoring. The main contents and viewpoints are as follows:1. contracting institutions and financing constraints. When a contract is not fully implemented, the entrepreneur must make costly concessions for obtaining external financing from outside investors, and the entrepreneurs’capital strength is more weak, the entrepreneurs would make more concessions to investors. For the same financial strength, when contracts become good the enterprises can reduce concessions to investors. From perspective of the prior stage before entrepreneur making a investment decision, the worse contracting institutions will make ex-pelling effect to entrepreneurs with intermediate strength. Therefor, contracting institutions become better from worse does not have any impact on entrepreneurs with weaker or stronger financial strength, however, for entrepreneurs with weak-er financial strength, better contracting institutions will make it easier to obtain bank loans, reduce the financial constrains, so as to get a positive effect. When the bank monitoring is not considered, the firm’s borrowing capacity will improve with contracting institutions becoming better, and the firm’s financial constrain-s will reduce; When contracting institutions become better and get to certain extent, the firm’s borrowing capacity will have nothing to do with contracting institutions, and then contracting institutions do not affect the firm’s financial constrains.2. Credit availability and financing constraints of enterprise. Compared with the unsupervised financing, bank monitoring is advantageous to obtain financing to the entrepreneurs with weak financial strength in the same contract system, which could ease the financing constraints of the enterprises. The bank moni-toring is more effective, and the enterprises financing constraints is smaller. If the contracting institutions is not good, in addition to the enterprises with very strong capital strength, the rest of the enterprises will be difficult to get unsuper-vised financing. All enterprises will can’t to obtain bank loans, then the firms are facing serious financing constraints. With the contracting institutions becomes better, the possibility of a substantial increase in business access to bank credit. When the contracting institutions enhanced to a certain extent, entrepreneur’s financing and benefits were not related to the contracting institutions.3. Entrepreneur’s borrowing capacity and financial constraints, under the contracting institutions is not bad situation, bank monitoring is bigger, the en-trepreneur’s borrowing capacity is stronger and financing constraints is lower. When the contracting institutions is bad, bank monitoring but will weaken cor-porate borrowing capacity and reduce corporate welfare, and this time compa-nies are more inclined to unsupervised financing; If the contracting institutions is very bad, bank monitoring will make corporate to lose financing capacity, so that corporate are facing severe financial constraints. Compared with unsuper-vised financing, when the contracting institutions is good to a certain extent, bank monitoring can enhance the ability of corporate borrowers, thus easing the financial constraints, entrepreneur’s utility has increased significantly.4. The effect of bank monitoring, when contracting institutions is good, the effect of banking monitoring to ease corporate financing constraints was not af-fected by contracting institutions; When the contracting institutions environment is in general, the effect that bank monitoring alleviates financial constraints will be weaken, as the contracting institutions becomes better.5. The empirical study. The enterprises generally face serious financing con-straints in china, and banks monitoring can effectively alleviate capital constraints of companies. If contracting institutions is better, companies’financial constraints is smaller, and the effect that bank monitoring alleviates financial constraints of companies is smaller.