A Study On The Structure Of Debt Financing And Corporate Performance

Capital structure is the base of corporate governance, and the debt financing is one of the most important parts of the capital structure. So the debt financing proves to play a significant role in corporate governance and performance.Since the MM theory was made by Franco Modigliani and Merton Howard Miller in 1958, there have been a mature theoretical system about capital structure and the financial researchers has always been seeking for the relationship between the financial structure and corporate value. For example, the agency cost theory, the pecking order theory, the theory of signal transfer and the theory of control-rights shift. That theoretical system has not only impelled the research in capital structure and corporate governance, but also proved great effects about debt financing on agency problem and corporate governance. The important role of debt financing is recognized by more and more researchers and corporations.Nowadays, the research of capital structure has become more and more remarkable, when our reform of economic structure goes deeper and capital market becomes more mature. However, the quantities of the research on stock financing are much larger than debt financing. And most of the research on debt financing is focus on macro analysis, lacking of micro analysis and experience research. There maybe two reasons for that status quo: 1. The construction of bond market is slower than stock market in China, so the corporations prefer stock financing to debt financing. 2. Many people don't really realize the important role of debt financing in corporate governance. So the research on debt financing is impending and realistic in China.We can classify the researches of debt financing in china into three aspects: 1. Macro analysis. 2. Researching with the mainstream of economics. 3. Analyzing the relationship between debt financing (including the structure of debt financing) and corporate governance or performance. But there are many deficiencies in them, such as the research methods, the research models and the research areas. Especially when analyzing the relationship between the structure of debt financing and corporate governance or performance, they always consider the debt to be homogeneous and static. However, different structure of debt financing and different seedtime, the effect on corporate governance or performance is different. This paper analyzes the problem and status quo of debt financing in China, and tries to find the relationship between the structure of debt financing and corporate performance from a dynamic angle. So in this paper, we also use the corporate lifecycle theory. And it picks up the most important stage—corporate growth, to analyze the structure of debt financing and corporate performance.The paper is divided into five chapters as follow:Chapter one is exordium. It tells the background and significance of the paper. It also mentions the research methods, the research objects, innovations and deficiencies of the paper.In chapter two, the basic theory and literature review, which are about the structure of debt financing and corporate performance, are summarized. The basic theory includes: the classic capital structure theory, the modern capital structure theory and the new capital structure theory. The classic capital structure theory can't be used widely, because it is based on subjective estimation, lacking mathematic analysis. And its conditions are strong limited, too. The main part of the modern capital structure theory is the MM theory, which is so classical and widely used after being modified by many researchers. The new capital structure theory uses the mainstream of economics, analyzing the capital structure from an internal angle and seeking for the relationship with corporate governance and corporate performance. It involves several representative theories, such as the agency cost theory, the pecking order theory, the theory of signal transfer, the theory of control-rights shift and so on. That theoretical system makes the research which is finding the relationship between the structure of debt financing and corporate performance become more diversified and integrated. So we must admit that the research on the structure of debt financing is contained in the research of capital structure, and the capital structure theory is the basic theory when analyzing the relationship between the structure of debt financing and corporate performance. In the second part of this chapter, literature review about the structure of debt financing and corporate performance is made. This paper classifies the structure into term structure, type structure and distribution structure to analyze. In the last part of the chapter, comment on the research in China is made.In the chapter three, the corporate lifecycle theory is used to analyze the relationship between the structure of debt financing and corporate performance from a new angle. Every corporation will face different stage from birth to death. At different stage, the developmental speed, the structure and the stratagem of the corporation are different. They also affect the structure of debt financing and corporate performance. So the corporate lifecycle must be considered as an important factor while analyzing the capital structure. And in the first part of the chapter, the corporate lifecycle theory is summarized. In the second part, the paper analyzes the effect that is made by different lifecycle on the structure of debt financing.Chapter four is empirical study and analysis. First part, the paper uses the industrial classification method to divide the listed companies into three types: growing listed companies, mature listed companies and recessionary listed companies. Then it picks up the growing listed companies as samples. Second part, Linear Regression is used to analyze the relationship between the structure of debt financing and corporate performance, some results have got, including: 1. As a whole, debt financing has a direct correlation with the performance of listed companies at their growth stage. 2. Different structure of debt financing indicates different desires from different main bodies. 3. In the structure of debt financing, both current liabilities and long-term liabilities have the direct correlation with the growing listed company's performance. However, the managers prefer current liabilities rather than long-term liabilities, because of the risk. So the proportion of current liabilities is much more than long-term liabilities. 4. In the structure of current liabilities, both bank loans and company loans have a great help for the growing listed company. But the bank loans will always be the first choice when the company needs money. The reasons for that phenomenon may be come from the macro-environment.In chapter five, the conclusions are obtained and the suggestions are put forward, such as: optimizing the relationship between bank and company, developing the bond market, re-establishment of corporate credit system and controlling the risk of debt financing.As an article with empirical study, this paper has limitation that empirical analysis has. At the same, because of the author's researching abilities, this paper only analyzes the relationship between the structure of debt financing and corporate performance at the stage of corporate growth and doesn't analyze the relationship at a whole lifecycle. And the paper also doesn't form a conclusion about how to construct a best structure of debt financing. In a word, the research of this paper is not enough and there are still many questions need to be resolved.