Empirical Study On The Impact Of Debt Over Investment Behavior

The financing and investment, the two basic financial activities of a company and determinants of firm value, are interrelated. One of the center problems in the field of finance is that what are the relationships among financing, investment and the company governance performance. In fact, borrowing process affects a firm's performance mainly through affecting its investment behavior and investment effect. Therefore, the debt governance ought to be implemented according to the affections of debt on investment.The sample firms are divided into high project risk firms and low project risk firms according to the firm's risk before and after increasing investment projects. The non-linearity relationship between debt financing and investment, and the influence of ownership structure on the relationship of debt and investment are verified based on the data of Chinese capital market in the paper. The main empirical results are as follows:First, for high project risk enterprises, there exist a non-linearity relationship that the investment scales increase first as the debt financing rises and then decreases after some degree of debt financing. Meanwhile, for low project risk enterprises, there exists a simple linearity relationship that the investment scales decrease as the debt financing rises.Second, for different samples, the impact of debt maturity structure over investment scales is different. In the low risk group, the sensibility between different debt maturity structure and investment scales is not too significantly different, but in high risk one, the relationship between short-term debt ratio and investment scales is significantly negative, while the relationship between long-term debt ratio and investment scales is negative but not significant. It suggests that current debt ratio has a stronger governance effect on investment scales than the long-term debt ratio does.Third, the empirical results tell us that although debt financing has governance effect on investment scales, it also bring on certain agency cost (such as over-investment and insufficient investment) and financial risk, which may reduce the effect of debt governance.Moreover, the paper also provides evidence that for different ownership concentration and ownership financing constraint, the relationship between debt financing and investment is also different. The results indicate that, the higher ownership concentration, the lower debt financing proportion , and the less notable relationship between investment and debt financing; the relationship between debt financing and investment is more notable in the company who have stock right financing constrain, which means that this kind of enterprise's investment may be more dependent on liabilities and internal cash flow.Finally, to sufficiently play debt financing's governance effect, reinforce the coordination of creditor's right governance and stock ownership governance, the last chapter submits a little countermeasure and suggestions, and the creditor's rights governance theory which depends on different states. All this improve the governance effect of debt financing, make the enterprise financing and investment decision-making more rational, and protect the benefit of capital investors more effectively.