Bank-Enterprise Relationship, Financial Flexibility And Enterprise Growth

The process of enterprise growth shows that the capital is indispensable in companies operation,and is the lifeblood of an enterprise.Under the macro policy of our country's credit cruch,some serious accidents occur frequently in recent years such as business bankruptcy,the owner disappearance and the debtor commit suicide by jumping down from upstair,which fully proved capital reserves is important for the survival and development of an enterprise.At the same time,with the rapid development of science and technology and economic globalization,the external environment faced by firms has great uncertainty.So it has become an urgent problem for Chinese companies to be solved how to raise enough money to meet the needs of the survival and development in the uncertain external situation.More and more scholars begin to pay attention to and engage in financial flexibility theory and practical fields.Based on financial flexibility as focus,this dissertation explores the influence factors and economic consequences of it.Reasonable financial flexibility reserve is useful for enterprise to keep fund sustainable and meet the needs of the enterprise growth.But in real life,when enterprises are of different types or in different periods,the level of its financial flexibility is obviously different.What factors will influence the level of financial flexibility reserve?Existing literatures mainly study the influence factors of financial flexibility from the enterprise external environment such as macroeconomic environment,environmental uncertainty,and internal characteristics such as enterprise character,corporate government and so on.But the scholars ignore the relational factors between internal and external environment,such as government-enterprise relationship,bank-enterprise relationship,and commercial credit.This dissertation explores the effect of bank-enterprise relationship on financial flexibility from the perspective of social capital.Bank-enterprise relationship is a kind of important social capital,which built in the contacts process of the bank and enterprise.Existing studies have shown that a good relationship can help the bank know about asset quality and profitability of the enterprise,alleviate the information asymmetry between them,reduce transaction costs,and more easily get money from the bank.During the period of our country economy transformation,because the capital market development is imperfect and related legal system is not complete,most enterprises,especially private enterprises face the serious financing constraints and credit discrimination.In order to circumvent financing constraints in the formal system,the enterprise needs to establish the necessary stability with the bank,such as executives of banks background,to make up for the defects of market mechanism and the insufficiency,and help enterprises to obtain scarce financial resources.Bank relationship can strengthen external financing ability of enterprises,and reduce the financing risk in the future.The enterprise weighs the capital reserves cost and financing risk,and then adjust the level of financial flexibility reserves.About the economic consequences of financial flexibility,scholars mainly get on studying from the aspects of financing,investment and corporate performance.The results indicate that under adverse shocks,the higher the financial flexibility level of enterprise,the less financing constraints,the higher the investment level,and corporate performance is also better.Specifically involving the related literature in the field of investment,more scholars select the overall investment as the research object,and study economic role of financial flexibility from the common validation of investment,and few scholars consider heterogeneity of different investment activities,explore the economic effects of financial flexibility on the specific investment activities.According to the theory of firm growth,the enterprise can grow through the the connotative or denotative way.R&D investment belongs to connotative growth way,the enterprise relies mainly on technical progress and independent innovation for sustainable internal development.While M&A investment belongs to the denotative growth way,the enterprise mainly carries out merger and acquisition activity to achieve the external expansion.In the imperfect capital market,the enterprise to grow whether through a path of connotation or denotation will be in the face of financing constraints problem.Reasonable financial flexibility reserve can help enterprise keep fund sustainable,can meet the demand of R&D and M&A investment,which make the enterprise gain sustainable,rapid and healthy development.This dissertation based on the two paths of enterprise growth,explores the effect of financial elastic on firm growth from internal growth way-R&D investment and external growth way-M&A investment.Meanwhile we put bank-enterprise relationship and financial flexibility into the same framework,further verify the adjust action of bank-enterprise relationship,which deepens the understanding of economic consequences of financial flexibility,and also enriches the theory of social capital and the enterprise growth.The dissertation studies the above problem by the methods of normative analysis and empirical analysis.First of all,we summarize the historical documents and related theories about bank-enterprise relationship,financial flexibility and firm growth.And then selecting Shanghai and shenzhen listed companies in China from 2007 to 2015 as the research sample,we carry out the related research including descriptive statistics,correlation analysis and multiple regression test by Excel2013 and STATA12 software.The text is divided into seven chapters,the main content of the chapters are as follows:The first chapter is about the introduction.It mainly expounds the research background,the theoretical and practical significance of this topic research,and proposes our research idea,main content,research methods and possible innovations.The second chapter is about the literature review.In this section we review and summarize the related literature of financial flexibility,bank-enterprise relationship,R&D and M&A investment.About financial flexibility,we comb the related literature from the aspect of influence factors,reserves types and economic consequences.On bank-enterprise relationship,we briefly reviews and summarizes the literature of relieving financing constraints and capital reserves.About the R&D innovation,the related literatures at home and abroad are reviewed from two aspects of capital sources and financing constraints.On M&A investment,including two aspects of M&A decision and payment,we also comb the related literature from the perspective of financing source.The above literature review lays the foundation of literature for subsequent empirical research.The third chapter is about the theoretical basis and system background.This chapter is mainly divided into three parts involving basic definition,system background analysis and theoretical basis.First of all,we discriminate and define a few basic concepts,and then analyze the background and the present situation of research topics including present situation of financial flexibility reserves,enterprise internal growth status,enterprise external growth status and the system background of bank-enterprise relationship.Finally,the related basic theories are analyzed,which lays the theoretical basis of this article.In the fourth chapter we study the impact of bank-enterprise relationship on financial flexibility,which belongs to the first section of the empirical research.First of all,we explore the influence factors of financial flexibility from the perspective of bank-enterprise relationship,and then combining with our country's special property system background,further verify the role of the relationship between bank-enterprise relationship and financial flexibility.What's more,we do sub-samples research according to financing constraints and future investment opportunities.In the fifth chapter we study the impact of bank-enterprise relationship and financial flexibility on R&D investment,which belongs to the second section of the empirical research.First of all,based on the theory of financing constraints,we inspect the impact of financial flexibility on R&D investment.Secondly,we put bank-enterprise relationship and financial flexibility into the same framework and further verify the impact of financial flexibility on R&D investment under different bank-enterprise relationships.Besides we do sub-samples research according to the nature of property rights,monetary policy and the external environmental uncertainty.In the sixth chapter we study the impact of bank-enterprise relationship and financial flexibility on M&A activity,which belongs to the third section of the empirical research.This chapter is divided into two pieces of content including mergers and acquisitions strategy and payment.For M&A strategy,we do the first research about the impact of financial flexibility on the frequency and motivation of mergers and acquisitions.And then putting bank-enterprise relationship and financial flexibility into the same framework,we explores the impact of financial flexibility on M&A investment under different bank-enterprise relationships.In addition we do sub-samples research according to the nature of property rights,monetary policy and the external environmental uncertainty.About payment for mergers and acquisitions,we analyze the influence of the financial flexibility on M&A payment.On the basis of the above,we put bank-enterprise relationship and financial flexibility into the same framework and further verify the impact of financial flexibility on the payment under different bank-enterprise relationships.What's more,we do sub-samples research according to the nature of property rights.The seventh chapter is about conclusion and suggestion.We summarize the main conclusions of this topic research.And we put forward policy suggestions from the perspective of enterprise,government and financial institutions.Meanwhile we point out the limitations of this dissertation from some aspects such as the sample selection,proxy variable selection and endogenous.Combined with the research content and limitations,future research directions are put forward.In this dissertation,we put bank-enterprise relationship and financial flexibility into the same framework,and explore the impact of financial flexibility on enterprise growth.And the main research conclusion includes the following thesis:In the first section of the empirical research about the impact of bank-enterprise relationship on financial flexibility,we found that there is a negative correlation between financial flexibility and bank-enterprise relationship measured by executives' bank background.That is,when there is correlation between enterprises and Banks,the enterprise will weigh the cost of capital and financing risk,tend to reserve at a low level of financial flexibility.And when there is no correlation between companies and Banks,it will reserve a higher level of financial flexibility.Combined the property right background,our study shows that relative to the state-owned enterprises,the negative effect of bank-enterprise relationship on financial flexibility is more significant in non-state-owned enterprises.According to financing constraints and future investment opportunities,the further results prove that the negative correlation between bank-enterprise relationship and financial flexibility is more significant,when listed companies face more serious financing constraints and good investment opportunities.The above research conclusion indicates that bank-enterprise relationship is an important influence factor of financial flexibility.The decision of financial flexibility reserve is made according to the correlation between the bank and enterprises.When the relationship exists,enterprises can choose to reserve a low level of financial flexibility,on the contrary reserve a higher level of financial flexibility.At the same time this kind of effect are different because of the nature of property rights,the external financing environment and the future investment opportunities.The findings broaden the research perspective of the influence factor of financial flexibility,also provides new empirical evidence for the influence of corporate social capital on financial decisions.In the second section of the empirical research about the impact of bank-enterprise relationship and financial flexibility on R&D investment,from two dimensions of R&D investment willingness measuring innovation consciousness and intensity measuring R&D investment levels,we found that the higher the level of enterprises' financial flexibility,the stronger its R&D investment willingness,and the bigger the intensity.Combined with bank-enterprise relationship,our study shows that the positive effect of financial flexibility on R&D investment is weakened when the relationship between enterprises and banks exists.The above findings suggest the level of financial flexibility will directly affect the enterprise's innovation activities,and a higher level of financial flexibility can ease financing constraints on R&D investment.At the same time,bank-enterprise relationship can reduce the dependence of R&D investment on financial flexibility.When enterprises reconstruct funds for R&D investment,there is an alternative role between bank-enterprise relationship and financial flexibility.That is,companies tend to raise funds from banks when the relationship between enterprises and Banks exists;On the contrary when there is no correlation between companies and banks,companies mainly obtain funds by reserving a higher level of financial flexibility.The findings provide a new empirical evidence for understanding the impact mechanism of bank-enterprise relationship and financial flexibility on R&D investment.In addition,by doing sub-samples researches according to the nature of property rights,monetary policy and the external environmental uncertainty,we found that the positive effect of financial flexibility on R&D investment in non-state enterprises is more significant.The greater external environment uncertainty or the more tightening monetary policy,the more obvious the effect of financial flexibility on R&D investment,which reflects the property right characteristic and environmental uncertainty characteristics of the effect of financial flexibility on innovation.In the third section of the empirical research about the impact of bank-enterprise relationship and financial flexibility on M&A investment,from two angles of M&A strategy and payment,we found that the higher the level of financial flexibility in the enterprise,the stronger the motives of mergers and acquisitions,and the higher frequency of mergers and acquisitions.What's more,when the enterprise implements mergers and acquisitions,it tends to choose cash as payment.Combined with the bank-enterprise relationship,further studies have proved that when the relationship between enterprises and banks exists,the above correlation is weakened.This suggests financial flexibility can directly affect mergers and acquisitions activities of enterprises,and a higher level of financial flexibility can ease financing constraints on M&A investment.At the same time,bank-enterprise relationship can reduce the dependence of M&A investment on financial flexibility.When enterprises reconstruct funds for M&A investment,there is an alternative role between bank-enterprise relationship and financial flexibility.That is,companies tend to raise funds from banks when the relationship between enterprises and banks exists;On the contrary when there is no correlation between companies and banks,companies mainly obtain funds by reserving a higher level of financial flexibility.The findings provide a new empirical evidence for understanding the impact mechanism of bank-enterprise relationship and financial flexibility on M&A investment.Besides by doing sub-samples researches according to the nature of property rights,monetary policy and the external environmental uncertainty,we found that the positive effect of financial flexibility on M&A strategy and payment in non-state enterprises is more significant.The greater external environment uncertainty or the more tightening monetary policy,the more obvious the effect of financial flexibility on M&A strategy.In short,during the period of our country economy transformation,because the capital market development is imperfect,and related legal system is not complete,the growth of enterprises inevitably is affected by capital constrains.Reasonable financial flexibility reserves can effectively ease the financing bottleneck of enterprises in the process of internal and external growth.But financial flexibility has two sides,high level of financial flexibility would increase the cost of enterprise's capital reserves.Bank-enterprise relationship as a kind of social capital of enterprises,can make up the defects of market mechanism and the insufficiency,help enterprises to obtain scarce financial resources.Therefore,the enterprise in financing decisions,weighs the cost of capital reserves and financing risk,and organically combines financial flexibility with bank-enterprise relationship.The decision of financial flexibility reserve should be based on the correlation between enterprises and banks,so as to reconstruct funds in a timely and effective manner,which makes the enterprise gain the healthy,rapid and sustainable development.In this dissertation,we combine financial flexibility with bank-enterprise relationship and explore the impact of both on enterprise growth.The possible innovations are as follows:First of all,we empirical analyze the impact of bank-enterprise relationship on financial flexibility from the perspective of social capital.The existing scholars focus on two aspects of enterprise's external environment and internal characteristics about the influence factors,such as the uncertainty of external environment,internal cash flow,future investment opportunities,life cycle and upfront investment proportion.But relational factors connecting internal and external environment of enterprises will also affect capital raising and scheduling ability.That is,the factors including government-enterprise relationship,bank-enterprise relationship and commercial credit and so on,will have impact on financial flexibility.And there are few scholars from the perspective of social capital to explore and research.Selecting the listed data as samples,we empirical analyze the impact of bank-enterprise relationship on financial flexibility from the perspective of social capital.At the same time combining the property right background,we further verify the impact difference of bank-enterprise relationship on financial flexibility under different property rights,which broadens the research perspective of the influence factors of financial flexibility.Secondly,we also verify the impact of bank-enterprise relationship on capital reserves decision from the perspective of financial flexibility.Bank-enterprise relationship as an important form of social capital,can reduce the information asymmetry of both parties,enhance enterprise's financing ability,and reduce the financing risk in the future.When the enterprise makes decision of financial flexibility reserve,it weighs the cost of capital and financing risk on the basis of the relationship between the bank and the enterprise.The more scholars focus on cash holdings aspects research about the impact of bank-enterprise relationship on capital reserves,but less analyze the influence of bank-enterprise relationship on financial flexibility from the aspect of cash decisions and capital structure decision fusion.The results provide new empirical evidence for the influence of corporate social capital on financial decisions,and also expand the research in the field of corporate social capital.Finally,putting bank-enterprise relationship and financial flexibility into the same framework,we study the effect of both on enterprise growth.R&D investment as a connotative growth way of enterprises,is very important for the enterprise to achieve sustainable and healthy development.There are more literatures about the influence of financing constraints and financing source on R&D investment,Scholars think fund raising ability of enterprises will be significant impact on R&D activities.Whether cash holding or debt financing will have an effect on R&D decision.But few scholars study the effect of financial flexibility on R&D investment from the aspect of cash decisions and capital structure decision fusion.And fewer scholars from the perspective of social capital put bank-enterprise relationship,financial flexibility and R&D investment into the same framework for research.In this dissertation we analyze and empirical test the impact of financial flexibility on R&D investment from two dimensions of R&D investment willingness and intensity,which provides a new perspective for the research in the field of research and development,and enriches the theory of internal enterprise growth.Mergers and acquisitions as a denotative growth way of enterprises,for the implementation of the enterprise external expansion and optimal allocation of resources is of great significance.There are more literatures about the influence of financing constraints and financing source on M&A investment,Scholars think whether cash holding or debt financing will have an effect on M&A decision and M&A payment.But few scholars study the effect of financial flexibility on M&A investment from the aspect of cash decisions and capital structure decision fusion.And fewer scholars put bank-enterprise relationship,financial flexibility and M&A investment into the same framework for research.Based on the perspective of bank-enterprise relationship,we the impact of bank-enterprise relationship on financial flexibility and acquisition activity from two angles of M&A strategy and payment,which provides a new angle for the research of in the field of mergers and acquisitions,and enriches the theory of external enterprise growth.