The Effect Of Debt Financing On Corporate Governance In China's Listed Companies

From modem theories of capital structure and corporate governance, debt financing proves to play a very important role in corporate governance. This paper begins with a look at the evolvement of two theories, meant to disclose the relationship between debt financing and corporate governance. It then highlights the effect of debt financing on corporate governance in developed economy from three aspects, i.e., manager stimulation, signal transfer and control-rights shift. A comparison is made between bank loans and corporate bonds thereafter. And then, after comparing capital market-based finance model with bank intermediation-based finance model, it employs an economic model to analyze debt financing and manager stimulation in Chinese enterprises, which points out that debt, alone with its bankruptcy mechanism, doesn't promise to be an effective incentive to managers, as long as companies excessively rely on bank loans for outside financing. The following part proceeds to an empirical research on debt financing and governance performance, sampling all China's A-share listed companies (from 2000 to 2002). Conclusions include: (1) As a whole, debt financing does not constitute a large part of company financing, leaving some space to go;(2) Due to unreasonable debt structure, currently adopted methods in debt financing doesn't help up with corporate governance;(3) Regarding governance improvement, private companies do a better job than State-owned companies in debt financing, which, to some extent, implies the necessity to develop private companies.From all above, the paper ends up with suggestions to reform stated-owned commercial bank, develop corporate bond market, improve bankruptcy mechanism and advance main bank system.