Chinese State-owned Enterprise Capital Structure Debt Equity Swap "research

There are a lot of conclusions yet in debt financing and stock financing: for example debt financing is superior to stock financing because of the existence of tax shield and risk premium, but obviously many this kind of conclusions are overthrown during our country's economical operation. Certainly these conclusions are not wrong but because some supposes are violated. Our purpose is to find out the restraint condition to explain the economic phenomenon of china, and it can be used to direct the practice and policy making when the theory is perfect.A lot of bad assets in the state-run assets of our country caused the exchange of debt to stock in large scale. It provide a better controlled test to ours research. We hope to find the economic law that can interpret the phenomenon and make a little contribution to the enterprise theory.This paper begins with the M-M theory and its expansion. It thinks that, the property subject of state-owned enterprise and bank is not clear, the government official who have residual control rights and the country that has residual reclaim rights is not the same person. The unclear of property leads to rent dissipation and wealth reallocation (bad assets). On the condition that the game rule is unchanged the institute that all agents want to reduce rent dissipation 畐ill be taken under the pressure of competition. The swap is one that is included. The change from debt to stock has an important effect on the interest coordination of state-owned enterprise, state-run banks and other agents. It is a contract choice that trade-off all kinds of distortion (save transaction cost) at present. It belongs to the welfare improvement in Kaldor meaning 產nd can drive the reform process further. There are some problems about the swap from debt to stock such as the Adverse Selection and Moral Hazard in the contract choice which need to be restrained and improved. Of course the most important problem is the property structure of state-owned enterprise after the swap and the clear of proper subject and the improvement of the govern efficiency.