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State-owned Enterprise Capital Structure Research

Posted on:2002-05-03Degree:DoctorType:Dissertation
Country:ChinaCandidate:W Y XuFull Text:PDF
GTID:1116360065450415Subject:World economy
Abstract/Summary:PDF Full Text Request
The issue of Chinese SOEs' capital structure is one of the difficulties for SOEs to operate continuously and reform further. There have been many literatures on this issue with different views. Some authors seek solutions directly from the fact reflecting the practice of reform and thus make their policy proposals; some authors explored this issue from the aspect of theory, depending on some theory, such as agent theory. To be different with these studies, both the theory of industrial organization and the theory of financial management is integrated in this thesis, and the issue of capital structure is depicted due to the financial and operational risks.The key point of this thesis is: the high debt-asset ratio of SOEs is due to the integration of high financial risk and increasing operational risk, among which the soft budget constraint is specially important. The soft budget constraint can be demonstrated into two interrelated aspects: firstly, at initial investment, the SOEs can borrow loans, no matter the quantity of net asset received is; secondly, when the SOEs is in poor condition, the government still ask banks to help the SOEs rather than close them. The SOEs are apt to depend on over-indebted financing. It is not only due to the comparative relationship between the low cost and high profit of being debtor, but also due to competitive indebted financing induced by competitive output strategy among firms in the product market. The SOEs' soft budget constraint winks at the competitive indebted financing, the authority-decentralization reform and state-owned bank system deteriorated this soft budget constraint, thus, to a great extent, SOEs' debt-asset ratio has become a viable determined by government. The high debt increases financial leverage of SOEs, resulting in higher probability of enterprise financial risk and bankruptcy. In the analysis for transition process, in the long run, the author demonstrated that the operational risk of SOEs is increased systematically. This increasing risk was resulted from the new entrant of nonstate-owned enterprises, and the quick formation of keen competition, in this process, the expansion speed of demand curve decreased. This competition became serious because the enterprises attempted to enlarge their productive size to be low-cost enterprise, this means that the current size of market demand can not hold so much increased-size producer, as a result, the enterprise failed in the competition should be eliminated. Nevertheless, for the budget constraint, the poor SOEs can not be eliminated in competition. The bank will continuously support them. As a result, the difficulty of SOEs operation is seemingly due to over indebtedness, the nature of it iscontributed to the decreasing capability of making profit leading to lower and cumulative principal and interest of loans made by soft budget constraint. The cumulative principal and interest increase the SOEs' fixed cost and impairs the capability of making profit.The sections of this paper are organized as follows. Chapter 1 is a survey of enterprises' capital structure theory; Chapter 2 demonstrates the viewpoint that the enterprise is apt to depend on indebted financing. Firstly, brings some features of transition economy to an extended equilibrium theory model, discusses the reason for SOEs' indebted financing is many kinds of financial subsidies probably obtained by indebted financing, however, the cost of indebted financing is relative low. Secondly, with regard of operational risk, integrates the financing decision with the output decision in the product market, sets up a two-stage game model. In this model, the level of enterprises' liability is determined by the action of enterprises maximizing their enterprises' value together with the action of creditor seeking maximum credit value. Nevertheless, under soft budget constraint, the competitiveness of output strategy in the product market derives the competitiveness of indebted financing. In this part, the impacts of capability of gover...
Keywords/Search Tags:capital structure, financial risk, operation risk, soft budget constraint, coumot output equilibrium
PDF Full Text Request
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