Research On The Mechanism Of Signing And Fulfillment Of Incomplete Financial Contracts

The mainstream of the modern finance theory basically is the works of exogenous neoclassic complete contract theory. Regarding firm as the production function, it is doomed to have the institutional flaw to the firm interior conflict question. Although agency theory, as the endogenous modern firm contract theory, has the view of firm contract, and focuses on the conflict of firm agency contract, the big difference between its supposition of complete contract and the reality leads to inefficiency or failure of ex ante optimal contract to govern conflict. The paper applies incomplete contracting theory, the most recent development of the modern firm contract theory which draws close to the realistic contract behavior, to research finance contract question of signing mechanism, conflict model,fufillment mechanism, and the establish the basic incomplete financial contract theory system. The relevant theories and the empirical research to the finance contract behavior by the new paradigm, on the one hand, may make up the exogenous mainstream finance theory intrinsic institutional flaw, on the other hand, may provide more scientific and reasonable theory instruction to firm finance contract of signing, conflict and fufillment, comparing the endogenous complete finance contract theory.Firstly, the paper applies incomplete contracting theory to restructure the firm finance transaction nature as the process of a series of incomplete financial contract's signing and fufillment, the finance objective as the maximization of firm cooperation earnings or the organization rent, equaling the maximization of firm residuals, being consistent with intrinsic logics of firm residual control rights allocation which manifests contingent-state and marginal revision. Taking these as the logical beginning, the paper proposes the construction of incomplete finance contract theory including its' signing mechanism, conflict model and fufillment mechanism. Meanwhile, the paper proves the essence of incomplete financial contract theory is about the conflicting financial theory and the residual control rights allocation theory, the objective of its' signing and implementation is to incentive and protect investment of the relation-specific asset of the financial contractual subject.Secondly, the paper has utilized in transaction cost economic theory (TCE) and incomplete contract property right theory (GHM), the two kinds of incomplete contracting theory, to analyzes the incomplete financial contract's signing mechanism. The financial contract signing mechanism research in TCE begins at the basic principle that transaction type should match the contractual governance structure of transaction. Finance contracts should match the different financing transaction due to the same logic. So, a conclusion is draw that equity contract which manifests the relationship-contractual governance, rather than the creditor's rights contract which manifest the rigid contract governance, is more suitable to finance for the high- specific-asset to save transaction cost, and it is also more advantageous to incentive and protect the relationship- specific asset investment. The financial contracts signing mechanism researches in GHM begin at the signing objective of financial contract, and then draw the conclusion about the general mechanism of incomplete financial contract. For further research, the paper discusses the state contingent of financial contract signing and analyzes special significance of creditor's rights contract based on Aghion-Bolton model. Then, take china firm as the samples, the paper empirically study the incomplete financial contract signing general mechanism.Thirdly, the paper researches conflict intrinsic mechanism of the incomplete equity contract and the incomplete creditor's rights contract as well as china firm conflict in realty. the research founds analytical frame about incomplete equity contract conflict based on the incomplete contract theory, and proves that the two conflicting models, the managers self-seeking (agency I) and first stockholder tunneling (agency II), have same essence, that is the residuals are not matching (i.e. property rights of firms is incomplete ) . Simultaneously, the paper also proves the equity contract conflict model is state contingent following the contract structure. The above conclusions are supported by the empirical study as the samples of china firm. In the research aspect of incomplete creditor's rights contract conflict, the paper analyzes the conflict foundation and the root of the creditor's rights contract. and especially research the two conflict model of overinvestment and underinvestment based on incomplete contracting theory , pointing out that two conflict models are caused by the shareholder to deprive of the quasi-rent of creditor's specific investment making use of the"observable but non-verifiable" contract provision. Then the empirical study also test china firm creditor's rights contract conflict fundamental mode, discovering the characteristic of china firm creditor's rights contract conflict is general, also has the particularity.Finally, the paper studies incomplete financial contract's general fulfillment mechanism and the fundamental implementation of its' state contingent control mechanism. The paper proves the basic principle, the influencing factors, and the essential ways to promote the self-fulfillment of the mechanism. Based on this, the paper studies with emphasis the most important fulfillment mechanism of incomplete financial contract------renegotiation mechanism, analyzing the fundamental renegotiationelements, constructing negotiated renegotiation model. Simultaneously, the paper also studies the principle of dynamic allocation of the residual control rights which is concrete form of renegotiation mechanism, pointing out the effective dynamic allocation is to realize transformation from non-cooperation game to the cooperation game among the subject of financial contract. According to dynamic allocation of residual control rights, the control of incomplete financial contract is state contingent, meaning that its' fundamental implementation path is shareholders' regular governance and creditors' state-contingent governance.