Financial Leverage On Corporate Investment In The Ownership Structure Perspective Impact Studies

The core of the dissertation belongs to the development of the capital structure.Thatis whether the financial leverage would affect the investment and the value of theenterprise.The famous MM theorem formed the foundation of modern capitalstructure theory,with a series of stringent assumptions.MM theorem considers thatthere is no relationship between behavior of financing and investment.However,thereis no possibility to implement the stringent assumption.Other scholars relaxed thestrict assumptions of MM theorem,and found that the financing would affect theinvestment activities in the subsequent research.Research on the relationship between Financial leverage and investment,is from theview of governance mechanisms in foreign countries,using the theory of signaltransaction,free cash flow and controlling.Based on the analysis of the debt as amechanism of corporate governance,the research analyzes how the leverage affect theinvestment and the business performance and corporate value."Liability should notbe seen as a means of financing,it is also an important instrument ofgovernance"(Williamson,1988).With the ownership structure varies fromdecentralization to centralization,the main principal-agent relationship of the firm hasalso changed.The principal-agent conflict between shareholders-managers and,shareholders-creditors is no longer the major conflict.Conflict among the bigshareholders and small shareholders,big shareholders and creditors are the core.Which may cause the over investment,under investment and asset substitution.Andthe governance of financial leverage is constrainting over-investment,or causingunder-investment.As a result,there is negative relationship between leverage andinvestment,due to the hard budget constraint of leverage.The existing evidence is largely drawn from developed markets,such as the US andCanada,where there are developed credit market especially bonds market,and theperfect system of protecting the interests of debt holders.As a developing market,there are some characteristic in its credit market andownership.On the one hand,the imperfect credit market may distort the leverage's constrainting effect,including the complex relationship between banks and firms,undeveloped bonds markets,imperfect protection on bonds holders.On the otherhands,the centralization of the ownership structure and,the existing of thestated-owned shares,can .affect both the financing and the investment of the firm.Fewer similar works on the leverage's constrainting effect on investment andcorporate value,have been conducted in China,from the perspective of ownershipstructure.The framework of the dissertation is following as:firstly,making a summarization ofthe relevant theoretical and empirical studies,in order to find the direction of anin-depth research;secondly,making a theoretical analysis on the effect of financialleverage's constrainting effect and analyzing the debt financing environment and thecharacteristic of ownership structure;thirdly,making a empirical testing based on thepanel data of Chinese listed companies of 1999-2006.Finally,giving the conclusionof the study of this dissertation,as well as policy recommendations.From the studying ,some conclusions was found as following:(1) In China's listed companies,the high concentration of the ownership structure andthe existing of the Stated-owned shares,which can both affect the investment decisionand the financing.One the one hand,the big shareholder have the power to makedecision,as a result,the over-investment behavior may arises,due to the pursuingcontrolling interests usually provides various kinds of"soft money"when the firm infinancial crisis,which may weaken the hard budget constraint that leverage imposeson investment.(2) China's listed companies are faced with the complex environment of the debtfinancing,including the homology property between banks and enterprises,theexcessive dependence on bank loans,undeveloped bond market,the high proportionof short-term debt,low proportion of public debt,all of these factors have affected thefinancial leverage on corporate investment,as well as the effects of enterprise value.(3)The results of empirical research in chapter V reveals that:In China,there is anegative relationship between a firm's investment and leverage,which is significant only for low-growth firms.A higher level of state-owned shares and of shares held bythe largest shareholder tends to weaken the disciplinary effect of debt on firminvestment.The presence of challenging shareholders,can impose a strengtheningeffect.(4) The results of empirical research in chapter VI reveals that:Among Chinese listedfirms,the relationship between debt and firm value depends on the investmentopportunity set confronted by firms.For firms with fewer growth opportunities,debtis more likely to have a positive impact on firm value.For firms with more growthopportunities,debt may have no significant impact on firm value.Among Chineselisted firms,the impact of debt on market valuation for firms with different growthopportunity sets can be altered by firms' ownership structure.For firms with fewergrowth opportunities,a larger stake of shareholding by government and by the largestshareholder could weaken the positive impact of debt on firm value,whilechallenging shareholders could strengthen it.