Corporate Finance Theory

Corporate financing is one of the main issues that firms will encounter during the process of marketization. To give it a profound reflection, there are several problems waiting to be answered: Why economic and finance system can influence a firm financing pattern and structure? Why firms are always obsessed by capital shortage and the maintained desire for funds? Why capital seems deficient in firms from the microscopic perspective while relatively sufficient in the macroscopic society? Why financing pattern and financing structure interact with corporate governance? How to widen financing channels, transform financing patterns, and raise financing efficiency? And how to select corporate financing patterns and optimize financing structure and governance?Based on large volumes of research literature and positive analyses of Chinese and foreign scholars, this article focuses on the line of corporate financing patterns?financing structure?governance. It first examines the general theories and processes of corporate financing patterns and structure allocation, then factors of social institution are introduced and financing oriented and corporate governances of different countries and economic systems are studied. By combining logic and historical sequences, the real conditions of nowadays China are also taken into consideration, which includes the transformation and development of Chinese corporate financing system. Finally, the article presents the main considerations and strategic proposals on innovation of property right institution and adjustment of financing structure. Under the principle of rom abstract to specific?and rom simple to complicate? it can be divided into the following six chapters:Chapter I Introduction. It generally describes the topic of this article and its definition, offers reasons for choosing it, introduces the present research conditions concerning this topic and the ways of research and structure design. Its. contents are the basis for the following chapters to further develop theories and positive analyses.Chapter II Evaluation of Corporate Financing Patterns. According to its different sources, corporate financing includes internal financing and externalfinaning. EXtemal financing consists of direct financing and indirect financing,while direct finaning involves bond being and stOck finaning. Differenfinancing pattems and their combinaions can exert various impacts on thedevelopment of a fm. The main problem for corpOrate financing to soIve is how tOacqulre the neceswi caPital for develoPment and how to allocae the caPitals fromdifferent sources in order to match risks with costs. In the westem society due to theexistence of asyIInnetric information and agency problem, corporate financinggenerally follows the practices of be intemal finaning, then bond fmancing, andfinally stock finaning. -Cbapter III Tbeories and Construction of CorPorate Financing Sbocture.AJl the theories about modem comp financing stricture (caPital StrUdri)consider two basic questions: firSt, can debt replaces stock to increase a fam's value;if yes, then what is the o~ debt ~ity? Econondsts offers various answersaccordin to their researchs on taXation (Modig1ibo and Miller, l958,l963), theoryof agency (Jensen and Meckling, 1976), roetric infOrmation (Myers and Majlufl984), and theOry of cOrpOrate cothel pes & Raviv, l988). On the basis offinancing strUCtUr theories and POsitive analyses, several issues about theconstrUction and oPtiInitalion of corpOrate financing StrUCtUre deserve adeqUateattention: (l) aPPoPriately design and choose financing instruments to match riSksand costs; (2) estabIish through hane cOnthect the relations of the investing andfinancing parties about their respective rights and obligations, thereby reducing theagency coStS of twing; (3) Inate financing smict'Ure with asset smicfor, that is,match the mahaty StrUC'tUr and legal resPonsibilities of the cash ouulow offinaning insboent with the exPected cash inflow a...