An Empirical Research On The Effect Of Debt Financing On Investment Behavior Of The Chinese Listed Company

Financing decision and investment decision are the core business activities of a company. Divided by MM theory, tradition corporate finance theory supposes that financing decision is absolutely independent of investment decision based on incomplete markets and information symmetry hypothesis, however MM separate principle doesn't tell the truth of the real world. With the development of new system economics such as information economics, principal-agent theory and contract theory, more and more scholars pay attention to the conflicts of interest between relevant beneficiaries and information asymmetry. Modern corporate finance theory deems that enterprise a nexus of contracts, so interest conflicts between relevant beneficiaries of a company bring on agency cost. Jensen and Meckling defined agency cost as the sum of the monitoring expenditures by the principal, the bonding expenditures by the agent and the residual loss.There are two kinds of agency cost namely equity agency cost and debt agency cost distinguishing from capital structure. Interest conflicts between shareholder-creditors generate debt agency cost, and bring on asset substitution and under-investment; at the same time, contingent governance of debt financing reduces the conflicts between sharehold-manager and restricts over-investment generating from equity agency cost. First, this paper summarizes related literatures both in domestic and foreign, reviews basic financing and investment theory based on the tradition or modern corporate financing theory. Second, based on the new and shunt characteristic of Chinese capital market and the high ownership concentration, this paper reviews principal-agent theory on Berle-Means ownership diffusion model, and then builds a principal-agent framework under controlling shareholder's control, give a normative study on the effect of debt financing on investment behavior of the listed companies. Finally, this paper studies on Chinese listed companies and adopts Unbalancing Panel Data Model to give an empirical research on the effect of debt financing on investment behavior of the Chinese listed companies from growth, risk shifting incentive and ultimate owner. Empirical research conclusion shows that the effect of debt financing on investment behavior of the listed companies are dissimilar between different groups:(1) Leverage is positively related to investment in the whole samples group, regression result indicates that contingent governance has week effect in this whole samples group and debt financing generates intense debt agency cost, so the most of Chinese listed companies have an incentive of asset substitution.(2) Leverage is positively related to investment in the high growth group, regression result indicates that listed companies of high growth in China have the risk preference and asset substitution incentive; Leverage is positively related to investment in the low growth group, regression result indicates contingent governance is missing in the low growth group of listed companies in China.(3) Leverage is positively related to investment in the strong risk shifting incentive group, regression result indicates that asset substitution is dominative in the strong risk shifting incentive group of listed companies in China; Leverage doesn't have a significant relation to investment in the week risk shifting incentive group, regression result doesn't give an empirical evidence of contingent governance.(4) Leverage is positively related to investment in the state-owned group, regression result indicates state-owned company and its manager trends to adopt over-investment decision and contingent governance is missing in this group too; Leverage doesn't have a significant relation to investment in the non-state-owned group, regression result doesn't give an empirical evidence of contingent governance in the non-state-owned group of listed companies in China.