Study On Relationship Between Investment And Financing Of Agency Theory Listed Companies

Financing decision and investment decision have become an integral part of financial activities in today's economic boom. For an enterprise, financing and investment are two independent aspects and also a close-related unity. For a long period of time, either in theory or practice, people focus less on their interaction but more concern the individuality of each own. In the current corporate financial management, when decision-makers carry out financing and investing plan, the relationship between investment and financing is the most important aspect to consider. In this area the western scholars have achieved some theoretical value. But what they've obtained are the facts under the premise of relatively mature market economy, whether they are applicable to the listed companies in China still needs to prove. Some foreign scholars believe that in high-growth enterprises, debt financing will not reduce investment spending, while in low-growth enterprises, debt financing could give full play to the governance of over-investment for managers. Domestic scholars have also done from different aspects some research on the relationship between investment and financing, and the findings are mostly consistent with their counterparts abroad. So the study of the kind of this relationship based on the agency theory in our listed companies may produce the practical meaning for investing and financing.The paper extends from the point of agency theory the relationship between investment and financing. In the agency theory, the agency cost hypothesis believes that the debt financing business has two roles to the conduct of investment spending. One is the inhibit to the effective investment, the other is the liability on the role of governing over-investment. As there exists between shareholders, managers and creditors the contradiction, when the creditors find that managers of low-risk projects would give up the funds and invest in high-risk projects, the borrowing rate increases correspondingly. Inhibition of effective investment caused by high interest payment leads to insufficient investment. Possessing large amounts of free cash flow, the managers may likely to invest on below-zero-net-present-value projects, so over-investment happens. When being debt financing, repaying capital with interest is of strong lawbound before debt due, therefore the free cash low can be reduced by debt financing and over-investment restrained.To test the relationship between investment and financing in listed companies, the descriptive and empirical analyses have been made with the state-owned listed and private listed companies as the data samples. Facts of 611 Listed companies in Shanghai and Shenzhen are selected, models of GLS and OLS have been used to do the regression test and stability test. In conducting empirical analysis, the company's growth and risk transfer motivation are the two major points to start. A certain conclusion have been achieved as following: for the integrity of the sample company, when the company's risk transfer motivation is less than zero, the investment rate of the sample company reaches its maximum in 20-40% liability interval, after which diminishing by year. When the company's risk transfer motivation is greater than zero, the investment rate of the sample company diminishes with the debt-level increasing year by year. This shows that our investment in listed companies is dominated by under-investment effect. The statistical analysis tells from the samples of each group that whether by overall samples or by the nature of property rights, it's the same result that the investment rate is much lower to the companies of below-zero risk transfer motives than the companies of above-zero risk transfer motives. It proves different motive causes great influence to the relationship between financing and investment. When the motive is less-zero degree, the investment size will be reduced, while greater-zero degree, size increased. In the higher growth state-owned listed companies, the company's motivation above or below zero, debt financing coefficient shows no significant negative correlation, so debt financing plays no governing role for over-investment, in other words, the negative correlation is weak in financing and investment spending scale. To private listed companies, whether the risk transfer motive is above or below zero, debt financing coefficient shows significant negative correlation, so the debt financing has the inhibitory influence to the company's effective investment and leads to insufficient investment, in other words, strong the negative correlation in financing and investment spending scale. In the low growth state-owned companies, in the case of above-zero risk transfer motivation, debt financing shows positive correlation coefficient, while in the case of below zero, debt financing shows not significant negative correlation coefficient. The company will not achieve control of over-investment in both situations, that is to say, the negative correlation is weak in financing and investment spending scale, but for the private listed companies, whether the risk transfer motive is above or below zero, debt financing coefficient is negative(above-zero motive shows obvious negative correlation), that means debt financing creates effective role in governing over-investment.