A Study On The Governance Effect Of Debt Financing In Chinese State-owned Listed Companies

Debt and equity should be seen as not only different financing instruments, but also different governance structures. Debt financing and equity financing have different governance effects and they are complementary rather than mutually exclusive. Debt financing has a series of important effects of corporate governance, such as it can inhibit the non-efficient investment, motivate and restrict operators, transmit signals and optimize the allocation of corporate control, which play an important role in making up the deficiencies of equity governance and improving the corporate governance. However, in theory, the equity financing has been long given more importance than debt financing in the role of corporate governance. Besides, it is the same situation in practice that listed state-owned enterprises gave more attention to the governance effect of equity financing. As a result, to study governance effect of debt financing of state-owned listed companies has an important practical and theoretical significance.With the uncompleted state-owned enterprise reform and a stage of transition coming in China, the state, as a owner, is lack of the capital investment and funding supply system based on the credit has not been fundamentally changed. It makes the debt ratios of listed state-owned companies high. However, the governance effect of debt financing availed by listed state-owned companies is not into full play. Soft constraints of bank debt, bankruptcy and delisting system being unable to play its due role, and debt financing being difficult to constraint operators are inconsistent with the theory of governance effect of debt financing. A series of state-owned listed companies'financial fraud has exposed the weakening process of the governance effect of debt financing. There are mainly three factors involved in this. Firstly, the debt financing structure of state-owned listed companies is irrational. Secondly, China has not yet established a complete mechanism of bankruptcy. And lastly, the reform of state-owned commercial banks has not been finished. Consequently, the governance effect of debt financing of state-owned listed companies can be improved through optimizing the financing structure by developing the bond market, deepening banking reforms to strengthen the debt constraint, further improving the bankruptcy laws and regulations for establishing a sound mechanism of debt financing governance, and improving the social security system and labor market to address the worries of bankruptcy of state-owned enterprises, thereby enhancing its level of corporate governance and corporate competitiveness.In the process of writing this paper, I accessed to a large amount of literature, summarized the current situation of the governance effect of debt financing of state-owned listed companies, analyzed the reasons for this situation and made some recommendations and countermeasures. However, no first-hand data and the limited ability of author lead to the limitation of the paper which is that the paper didn't solve the problems of how to establish the index system of measuring the debt financing governance effect, how to collocate the debt financing governance and equity financing governance and what degree should debt financing governance play. All of these limitations are also the direction of the future research.