The Relationship Between Parent—subsidiary Debt Financing Options And The Distribution Of The Liquidity

The rapid development of the companies growing as groups, making some financial problems in the parent-subsidiary corporate structure can not be well explaned under the previous conclusions of the study on the group as a whole in its financing capacity and financial policies. The creditors’rights to ask repayment of corporate debt is usually against a separate legal entities rather than economic entities. The statements of new guidelines for the merger—parent company provide incremental information to the creditors to help them make decisions. However, the empirical evidence of the liquidity distribution of parent companies and subsidiaries with debt financing from creditors’point of view has not yet been given by existing researches. Based on this, This paper mainly studies the following questions:how the distribution of liquidity between the parent and subsidiary companies affect the Group’s debt financing capacity; whether the distribution of parent—subsidiary debt is depend on the liquidity distribution; whether the matching relations of debt distribution and liquidity distribution affecting the group’s investment efficiency.The existing researches about the relationship of interprise groups and debt financing view merger listed companies as a whole, examining whether the group affiliation of the listed companies eased financing constraints and enhance the ability of debt financing, but ignoring the listed parent companies and subsidiaries themselves constitute the enterprise group,the internal capital market of the parent—subsidiary itself may have played the role to ease the financing constraints and enhance the financing capacity. In addition, investigating the financing situation of a single member of the Group companies can not completely display the role of the Group’s internal capital market, the effect of the Group’s internal capital market should be reflected as the improvement of the Group’s financing situation. Therefore, this paper use the data after the implementation of new accounting standards, by building empirical model to test the Group’s debt financing capacity and its distribution and the impact of the corresponding of liquidity distribution and debt distribution on the Group’s investment efficiency under the parent—subsidiary structure.This study found that the liquidity distribution between the parent and subsidiary companies has impact on the Group’s debt level. The distribution of debt between the parent and subsidiary companies within the group is also affected by the distribution of liquidity, they are corresponding to a certain extent. When liquidity is more distributed in the parent/subsidiary, debt is also more distribution in the parent/subsidiary. Compared with the debt distribution and the liquidity distribution does not correspond, enterprise groups are more likely over—investment when they are corresponding.Different from the existing research which sdudied the impact of the overall liquidity on its financing capacity and financial policies mainly from the single entity or merger as a whole the main level, we study the liquidity distribution within the group companies between the parent and subsidiary companies, and analyzing the impact of distribution on the Group overall debt financing capacity and efficiency of investment. Only taking the liquidity of the distribution into account, can we more clearly determine the interests drivers of company’s financial policy, as well as provide a possible explanation for financial policy issues which can not be explained on the basis of the merger liquidity.