| Since Modigliani and Miller (1958), the MM theorem has been the starting point and benchmark of the study of corporate finance theory. However, this model has said little about patterns of corporate financing and governance. Since the1980s, the field of corporate finance has undergone a tremendous mutation, the principal direction of inquiry has been to introduce agency problems at various levels of the corporate structure, such as the management incentive and various claims. Analysis of incentive functions of various claims by application of the principal-agent theory is an important branch of microeconomics theory about corporate finance.The incentive financial contracts design mentioned in this article means how to design incentive programs through financial contracts by investors to mitigate the moral hazard problem, in order to coordinate the interests between the internal and external people better. First, based on literature review, the basic proposition and elements of financial incentives contract are clarified and defined in this research under the framework of moral hazard. Then the Martimort and Laffont(2002) principal-agent model of moral hazard is applied to the field of corporate finance and a sequential game method is used to study corporate limited liability information rent and debt financing constraints. It is shown that with moral hazard and limited liability, creditors have to make a trade-off between inducing effort and paying a limited liability rent to the agent, and corporate debt financing is faced with constraints-the expect net utility of creditor’s investment must not be less than the information rent extracted by entrepreneurs when they work with effort. And on this basis, influencing factors of corporate financing constraints is briefly analyzed.In order to analyze the performance of financing constraints and relationship between investment the cash flow sensitivity, a multi-stage financing model is introducted to the principal-agent model of fixed investment and relationship between investment the cash flow sensitivity is analyzed when continued enterprises which are confronted with financing constraints in face of (1) external investment opportunities,(2) random exogenous liquidity shocks,(3) serial correlation exogenous liquidity shocks and (4) endogenous liquidity shocks. This study explains why a financing constraints enterprise showed a positive sensitivity between investment and cash flow. In order to explore the relationship between financial development and financing constraints, the meanings and functions of financial development is first analyzed in five aspects:(1) producing information and allocating capital,(2) monitoring firms and exerting corporate governance,(3) risk amelioration,(4) pooling of savings,(5) easing exchange. And then the principal-agent model is applied to confirme how financial development can mitigate financing constraints in reducing moral hazard cost and transaction cost much formally. Studies show that signals which are informative on the entrepreneur’s effort can reduce information rents extracted by the entrepreneurs, thereby improving the incentive contract and to ease the debt financing constraints. And by adding variables which reflect the transaction costs to the principal-agent model, further studies show that financial development is beneficial to reduce the transaction costs in capital market to ease financing constraints.Finally, based on the results of mathematical model analysis, this paper conducts a dynamic panel analysis of the impacts of financial development on corporate financing constraints using panel data from Chinese manufacturing listed companies during the period2006-2011. The results show that:(1) the listed companies’fixed assets investment and cash flow are positively correlated significantly, which means financing constraints does exist in listed companies of China;(2) financial development has significantly reduced companies’ financing constraints of investment in fixed assets, and financing constraints is greater in regions with lower financial development than regions with higher financial development. |
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