Institutional Environment, Liquidation Value And Debt Financing Capabilities

Both in the western developed countries and developing countries,debt fi-nancing is a very important way of financing in reality.Since financing is a prerequisite for the survival and development of any enterprise,study on the entrepreneur' s debt financing has been one of the intensely interested theoreti-cal and practical research subjects.Debt financing means that the entrepreneur borrows from lenders by signing the debt contract.And in most cases,restrictive clauses allow creditors to liquidate entrepreneur' s assets if he cannot repay debts.May creditors get liquidated assets when the company is forced to liquidate?Will the entrepreneur repay the debt in accordance with financing contract?When ex-pected to the entrepreneur may not be able to repay the debt,are lenders willing to lend and how much will they lend?Therefore,it has important theoretical and practical significance to study the influence of contract implementation degree under the contracting institutions environment and liquidation value of assets on debt capacity.Borrowing between the entrepreneur and outside investors in the economy,may not only be affected by the uncertainty and information asymmetry,but also influenced by the contracting institutions environment,such as government inter-vention,the laws and regulations.Imperfect-enforcement of contract caused by lack of investor protection because of government intervention and legal institu-tions has important influence on the liquidation values and funding ability.So,in debt financing with the liquidation of assets as collateral,the theoretical analysis framework including government intervention,legal institutions and other infor-mation should be built.And then,the difference in assets liquidation values and funding ability in different regions of China could be explained.This article makes a deep exploration on assets liquidation values and fund-ing ability affected by contracting institutions environment,through combining with theoretical analysis and econometric methods.In terms of theoretical re-search,comprehensively using of new institutional economics,law and finance,the incomplete contract theory,game theory and other economic theory.This paper introduces institutions environment based on the basic model established by Tirole(2006),for studying the interactive relationship between liquidation values of specialized assets and debt financing ability.By solving the model,the paper analyzes how liquidation values of specialized assets and debt financing a-bility vary with the change of contracting institutions environment.In terms of empirical research,the theoretical results are verified through panel econometric analysis method.Where,the data is derived from Chinese listed companies and marketization index.This article studies assets liquidation values and funding ability under con-tracting institutions environment mainly through four aspects,including duopoly oligopoly and constant returns to scale,duopoly oligopoly and decreasing returns to scale,multi-oligarchic competition and constant returns to scale,and multi-oligarchic competition and decreasing returns to scale.The main content and viewpoints are as follows.Firstly,the theoretical research about the influence of contracting institution-s environment on liquidation values of specialized assets shows that,liquidation values of specialized assets is only concerned with the degree of returns implemen-tation,and has nothing to do with the degree of mortgage assets implementation and investors' evaluation of assets.The relationship between the degree of returns implementation and liquidation values of specialized assets will be affected by lots of factor,such as the enterprise's financial strength,competitive environment,the project' s income scale and financing capacity of himself and competitors.Secondly,the theoretical study about the influence of liquidation values of specialized assets on debt funding ability shows that,this kind of influence is connected with industry competition environment and form of the project's returns.In the case of constant returns to scale,assets liquidation values may have nothing to do with funding ability of the secure entrepreneur who does not need to liquidate assets,and be positively correlated with funding ability of the entrepreneur who needs to liquidate assets.In the case of decreasing returns to scale,it would be a process of mutual game between assets liquidation values and funding ability,this relationship could be influenced by specific production function of the project' s returns.Thirdly,the theoretical research about the influence of contracting institu-tions environment on debt funding ability shows that,this kind of influence is connected with industry competition environment and form of the project' s returns.In the case of constant returns to scale,contracting institutions envi-ronment may be positively correlated with funding ability of the entrepreneur.In the case of decreasing returns to scale,funding ability will be affected by the enterprise' s financial strength,the degree of assets specificity,financing capacity of competitors,the probability of productive enterprise,contracting institutions environment and many other factors:and the entrepreneur's financing ability will always benefit from better contracting institutions environment.In summary,better contracting institutions environment will not reduce the financing ability at least.If the contracting institutions environment is poor,better contracting institutions environment will increase the financing ability.And in most cases,increasing of assets liquidation values will improve the financing ability of someone at least.Finally,the empirical analysis indicates that financing capacity increases with the increase in assets liquidation values and level of contracting institutions en-vironment,such as degree of regional marketization,legal level and degree of government intervention.Assets liquidation values may have a more significant role in the financing capacity,if contracting institutions environment is better.The consistency between empirical analysis results and theoretical research con-clusions shows that the theoretical derivation owns very good realistic foundation.