Debt Structure, Equity Nature And Overinvestment

In recent years, Chinese economy kept the fast increase and the investment momentum was growing with the economic development. Though the investment drove the economic growth, all resource can not be optimized and focused due to the unconscionably investment by enterprises, which made the excess production capacity and great waste. The urgent problem is that how to restrict the overinvestment and protect our rights preferably in order to realize the maximization of enterprise value.As a tool of corporate governance, debt affects the overinvestment has been proved by lots of existing research results. The natural attribute of debt can restrict the free cash-flow in manager hand to limit the overinvestment. On the other hand, the debt will lead to the conflict between stockholder and debtor. We can call it asset substitution, which will aggravate the overinvestment. In order to deep analysis the debt’s effect mechanism to overinvestment, this article chose the financial data from one listed company in China. Through the measurement mold to overinvestment by Richardson (2006), the article studied the debt’s effect mechanism to overinvestment against the backdrop of state-owned shares. This article got the conclusion as follows:1) Overinvestment does exist in Chinese listed company. There are more than 50% companies have this trend.2) The administer to overinvestment from quick liabilities should be stronger than funded debt, and the difference of effect will be enlarged if there are state-owned shares. Shortened the debt maturity structure would be better for avoiding the overinvestment.3) Compared to commercial credit, bank loan has a stronger effect to over investment. But if there are state-owned shares joined in, bank loan’s constraint intensity would be weakened and even help the overinvestment. The administer effect would not be obvious in the debt’s type.There are 5 parts about this article: The first part is introductory theory. Through analyzing problems of investment from domestic or foreign, lead to the article’s backdrop and research. The author set up the structure and expounded the innovate in meantime.The second part is literature review. Through arranging the correlation theory and empirical documents of overinvestment at home and abroad, clarified the rationale which caused the overinvestment. This part concluded the research and clarified the possible effect of debt to overinvestment, then got the point and direction of this articleThe third part is theory analysis. Analyzing two conflicts around agent theory based on the previous research report, and then expounded in detail about the manage of debt and the difference of effect which caused by the different debt contracts in the shares nature when state-owned shares joined in.The forth part is empirical analysis. Introducing two assumptions from debt maturity structure and debt source structure separately to set up the model, this part used the regression analysis and other methods to test the data’s result and made the explanation about the result in theory and practice The fifth part is conclusion and proposal. According to the assumption based on the test result, this part arranged the revised effect of debt overinvestment and come up with the relevant strategy and proposal. At last, this article listed questions and limits which have not been resolved, and then made a prospect about the further research directionCompared with the foreign research, this article has three main contributions:1) This article studied the overinvestment from underdeveloped country. Not only using the existing western rationale and measurement model, it also combined our own shares nature, which filled the relevant blank in development country undoubtedly2) Now, most researches about the overinvestment are focus on exploring the direct relationship between free cash-flow and investment. Only few scholars studied the relationship between capital structure and investment. This article’s contribution is studying the relationship between capital structure and investment directly and put the two main decisions of corporate finance together.3) In allusion to the empirical research of debt and investment, lots of documents only stayed on the relationship between total debt and investment. But this article focus on one element---debt, and it made the empirical research about the structure and investment. It supplied the better collocation strategy of capital structure and more design procedures of debt contract.There are still some faults in the research process. Regarding the metering method of overinvestment and sample choosing, I need to improve the revised space and research method. The future further explore in this field can look for more scientific metering method, enlarge the sample’s coverage extension and use various methods to research...