Corporate Financing And Corporate Governance

It is contract that gets investors and employers together in firm. The study of modem corporate governance puts great emphasis on the agency problems caused by the separation of ownership and control. The substantial causes of the agency problems lie in information's asymmetry and incomplete contracts. The choice of the optimal financing policy can mitigate the conflicts of interest between agents and principals, arising from equity financing and debt financing. As an effective signal of information, capital structure can convey firm's inside information to outside investors, influencing their investment incentives. The choice of the optimal financing policy can avoid the problem of overinvestment and underinvestment, caused by the information asymmetry, to some extent. Firm is the nexus of a set of incomplete contracts, and the financing contracts are fundamental to the system. As different financial contracts, equity contracts and debt contracts have different internal request on the structure of corporate governance and play a great role on the allocation and matching of firm's residual claims and residual control rights. Now, in our country, many listed companies prefer to equity financing, which is partly caused by the fact that corporation bonds are of low expectancy of gains and high expectancy of bankruptcy cost in our stock market.