Controlling Shareholders, Debt Characteristics, And Company Investment

In western classic literatures, debt finance impacts the corporate's investment, because debt can reduce the insider's (or agent, i.e. the manager or the controlling blockholders) incentive to pursue private benefits via inefficient investment, and the agency cost. Yet this relation is originated from the separate ownership structure and the strong-form capital market. The emergence of the Chinese capital market originated from the commands of the government, and its evolutions is directed by the government command. On the one hand, the stated-owned shareholders control the listed stated-owned company, and the properties right relationships between the stated-owned companies and the stated-owned commercial bank are homogeneous. The homogeneity leads to a substitute of soft-financial-constraint for the rigid-constrains of bank credit, then the disciplining role of the debt fails, and it cannot reduce the agency cost. On the other hand, the listed non-stated-owned companies are often controlled by the entrepreneurs who started them, which leads to the phenomenon that one blockholder controls one company, the conflicts between manager and shareholders are substituted by the ones between the blockholders and minor shareholders. The controlling blockholders may seek private benefits that harm the interest of the outsider investors. The debt ratios of Chinese listed companies accompanied with its investment expenditures are over high, which leads to inefficiency and a high agency cost. This phenomenon is different from the traditional literatures which document the debt's constrains on the investment. The over-concentrate structure of ownership as well as the weak-form capital market differ the special financial structure and investment behaviors of companies listed in China from that of the aboard listed companies. Do the special financial structure and the investment behaviors have something to do with the blockholders? Do the homogeneous properties right relationship between the stated-owned companies and the stated-owned commercial banks weaken the effect of disciplining role of debt? Does the debt maturity structure affect the leverage which a company chooses? Do different types of the controlling blockholders influence the investment behaviors?Data in this paper are a subsample of CCER database, and the study window spreads from 2000 through 2009. The paper investigates the interactions among the controlling blockholders, debt characteristics and the company investment in the following dimensions. First, in order to specify the determinants of leverage and the debt maturity structure, the paper models company's growth into the analysis, then documents the significant impacts of growth on the leverage and maturity. Second, modeling the controlling shareholders into the analyses of the interactions between debt characteristics and investments, which make the result more robust. This is because the structure of ownership determines that of corporate governance, and then impacts the debt finance and investments.The paper contributes to the existing literature on the interactions among the growth opportunities, debt financing, and company investment in five dimensions. Firstly, there is a statistical positive relation between the growth opportunities and investment, and controlling shareholders strengthen the positive relation, that is, the controlling shareholders reduce the agency cost. Secondly, company investment expenditures vary with the different maturity structure, and ceteris paribus, short term debt accompanied with the risk of liquidity can refrain the cash quantity of a company, then impacts the free cash flow, so the effect of short-term debt's disciplining roles may stronger than the long-term debt. Thirdly, there exists a statistical positive interrelation among the types of the controlling shareholders, its controlling power, and leverage. When it comes to the contingency in this paper, this means the stated-owned listed companies are apt to high leverage. Fourthly, controlling shareholders may weaken the debt's disciplining role. It means that the over-and under-investment may be more likely investigated in the stated-owned listed companies.This paper has three points which is original as follows. Firstly comes the new perspective, which takes the growth into consideration in the process of investigating the determinants of leverage and debt maturity. Secondly, the paper focuses on the special institutions of over-concentrate structure of ownership. The existing literatures are mainly based on the scattered structure of ownership and a competitive perfect capital market. The institutions environment in China is different, so this paper incorporates the controlling shareholders as well as the homogeneous properties-right into the model to deduce a more robust conclusion. Thirdly, a new methodology is employed in the modeling process. A dynamic analysis framework is constructed by modeling the lead-and lag-value of variables. On the measurement of the power of controlling shareholders, this paper employs the same way which is used to calculate the power of voting in game theory.