Financing Policies, Ownership Concentration And Firm Value

This paper analyses the influence of financing policies and the ownership concentration on the firm market value when companies either face, or do not face profitable growth opportunities, and attempts to provide theoretic and practical guidance for the growth management of listed companies.This paper consists of six parts. Part 1 is the introduction, which includes research background, significance and major innovations. Part 2 is the literature reviews, and explained the theoretical foundation on which this studies based. Part 3 is the research design. Part 4 is the results and sensitivity analysis. Part 5 is the concluding remarks and recommendations. Part 6 is the research defects and the enlightenment for future researches.The theoretical foundation of the empirical studies is the underinvestment hypothesis and the overinvestment hypothesis. With investigating financial data from year 2000 to year 2004, a sample of 647 manufacturing publicly-traded Chinese companies is used. The MB (the ratio of the market value of equity to the book value of equity) was chosen as the indicator of future growth opportunities. Descriptive statistics and multiple linear regressions were used to validate the research hypotheses.The results of the Basic model confirm the underinvestment hypothesis and the overinvestment hypothesis by showing a negative relationship between firm value and leverage and dividend payments in the presence of growth opportunities. On the contrary, the relationship turns out to be positive when firms are absent from growth opportunities. Meanwhile, the article further explores the relationship between the debt maturity structure and the firm value when companies face different growth opportunities. The regression results of Extended Model (I) show that when have profitable investment projects, the level of the long-term debt and the short-term debt have a significant negative correlation with firm value, and the long-term debt has a more important role on firm value; when have no profitable investment projects, the short-term debt have a significant positive relationship with firm value, but the positive impact of the long-term debt is not notable. Extended Model (II) demonstrates that firm value would benefit from the financing policies in that the level of Long-term debt is close to zero, when companies have profitable growth opportunities. However, when have no profitable growth opportunities, the positive impact is not notable.