A Study On The Interactive Relation Between Debt Financing And Corporate Performance Of Listed Companies

Since Modigliani and Miller brought forward MM theory, the research on capital structure has become one of the hottest issues in the international financing field. In recent years, the capital structure and financing ways of Chinese listed companies received more and more attentions of scholars. But the interactive relation between debt financing and corporate performance for a company adopting debt financing has not been studied deeply in domestic literatures. As the integral part of the corporate capital structure theory, the interactive relation between debt financing and corporate performance for Chinese listed companies is studied in the thesis, and some results and suggestions are put forward, which would be complementary to present research.Based on the domestic and foreign scholar's research results, the thesis first analyzes the interactive relation between debt financing and corporate performance theoretically. The data used in the empirical study is restricted from 2001 to 2005 for the A-share companies in Chinese stock market of Shanghai and Shenzhen. Because only several single company's performance indexes are used in the existing literatures and the company's performance is not well represented, a new performance index using the Principal Component Analysis method is built in the thesis. A multivariate regression model including a few control variables is established, and the interactive relation between debt financing and corporate performance is tested by several ways.The study results indicate that there exists a significant interactive relation between debt financing and corporate performance for Chinese listed companies. As a whole, debt financing has the function of increasing the corporate performance. But the function is reverse for those firms with too high debt to asset ratios. The corporate performance also has a positive signaling effect on debt financing, and the function is also reverse for those firms with too high debt to asset ratios. On the other hand, it is noticed that the coefficients representing the interactive relation between debt financing and corporate performance are small, and they become smaller and smaller as time goes on. So we conclude that the interactive effect is limited or faint for the samples. The thesis also studies the optimal asset-liability ratio problem for a company to achieve the best performance, and the study result coincides with the international classic theory, but the value of the region is a little lower than the international level.Finally, the empirical results are analyzed in the thesis ,and in order to improve corporate governance by using debt financing and perfect capital structure by using signal effect of corporate performance some suggestions are put forward. The corporate governance effects of debt financing should be utilized further, and the capital structure should be improved by using the signal effects of corporate performance, and the benign interactive circulation of debt financing and corporate performance should be built up.