Study On The Effect Of Debt Financing Structure On Solvency Of Chinese City Investment Companies

Nowadays with the globalization of the economy, the company size is biggerand bigger, and financing has been one of the indispensable managementbehaviors. While in our country, the capital market is not mature, and the harshconditions of equity financing limit many companies’ development, so debtfinancing has become an important way to access external capital. As thecreditors, they focus on not only the companies’ profitability, but also theirsolvency. So in the debt financing process, if the companies could improve theirsolvency through adjusting the debt financing structure, and the study of thisissue will help the companies to formulate the corresponding financing plan,especially for Chinese city investment companies, the government investmentand financing platform, it has the guiding significance. However, as a branch ofthe capital structure research, the relationship between debt financing structureand solvency has not drawn enough attention, and it is quite necessary to furtherexplore the relationship between the two to promote the research progress of debtfinancing structure theoretically.By researching the debt financing structure and solvency in the relatedliterature, beginning with the principal-agent relationship of the capital structuretheory, this essay proposes the hypotheses that debt maturity structure haspositive influence on short-term solvency and negative influence on long-termsolvency, and the hypotheses that debt type structure has positive influence onboth short-term and long-term solvency, and on this basis, it constructs therelation model of debt financing structure and solvency in order to study thedifferent effects of different debt financing structures on solvency.This essay takes Chinese city investment companies as the research objects,based on the definition and the main business scope, finds83companies bysearching on the Shenzhen and Shanghai Stock Exchange web site, and selects59as the samples according to the sample selection principles. The essay firstlycollects index data of the samples in2010from their annual reports and auditreports according to the identified variables measuring indicators, secondlyanalyzes the reliability and validity of the data, thirdly sorts data with EXCEL, and lastly descriptively analyzes the sample variables.This essay uses EVIEWS for multiple regression analysis. The regressionresults support part of the hypotheses: long-term debt and corporate bond bothcan improve the short-term solvency, and it proves that choosing a highlong-term debt ratio and corporate bond ratio can enhance the liquidity so as toimprove the short-term solvency; bank loan and corporate bond both can improvethe long-term solvency, and it proves that these two types of debt both can play tourge the companies to improve their long-term financial condition; while bankloan is not yet able to improve the short-term solvency, and short-term debtcannot improve the long-term solvency either. Finally, this essay puts forward thespecific proposals to cope with the adjustment of the city investment companies’debt financing structure from the aspects of the companies and the government,to improve the solvency.