Research On Debt Finance And Corporate Governance

How to design a reasonable and effective corporate governance system is one of the essential corporate theory problems. Traditional corporate governance theory emphasizes the roles of shareholders. With the development of the theory of the firm and the theory of corporate governance, stakeholder theory becomes the popular view in corporate governance field. This paper discusses the effective creditor governance mechanism. We think the relationship between the creditors and debtors is the contractual relationship, so we discuss this problem from the financial contract view.Four chapters and one conclusion form this paper. The first chapter discusses the origins of the creditor governance problem, and makes a review of related debt finance and corporate governance papers. The second and third chapter discusses creditor governance system from complete contract and incomplete contract theory respectively. In the second chapter, creditors' investigation and verifying the income of investment, liquidating and non-pecuniary penalty force managements transfer the portion of incomes and gains to the creditors. In the third chapter, we prove that creditors' control on the enterprise's financing resources could provide the incentive of repayments, collateral assets could be viewed as the mechanism of creditors transferring the returns to the debtors, covenants in the debt contract could trigger renegotiation between the creditors and debtors and raise the income of the creditors. The fourth chapter analyses the choices of corporate control rights for creditors and the designs of manager's effort incentives. The last is the paper's conclusion.