Factors Affecting Cost Of Debt In China’s Public Companies

Into the twenty-first century, China’s listed companies have a rapid development,at the same time, the demand for capital is also growing. Due to positive leverage ofdebt capital, the listed companies create excess financial profit and the rapid growthof corporate value, debt capital is becoming a major source of funding for China’slisted companies, debt financing has also become the firm’s major mode of financing.But in the company’s debt financing decision, cost of capital is an important factor toaffect the demand for corporate finance and the long-term development of listedcompanies. The higher costs of debt financing to reduce the listed company’sfinancing ability, affect the company’s growth in size and performance improvement.There excite large numbers of complicated influencing factors which are not onlyrelated to the legal financial environment, social credit system, but closely related tothe ability of their own as well. However, the current study on influence factors ofdebt financing cost are not comprehensive, most of them make the thoroughdiscussion on a factor, or just focus on the enterprise internal indicators. Therefore,this article will discuss the influence of debt financing costs on a number of factors.assess the impact of the varying factors on the debt financing for listed companies andmake the policy recommendations to reduce the debt financing on the above basis.Firstly, this paper defined on the concept of cost of debt financing for publiccompanies, in-depth analysis of various factors that affect the cost of debt financing.According to it, data being in the period between2003and2010of the listedcompanies (excluding financial companies) in Shanghai Stock Exchange andShenzhen Stock Exchange totally866is used. Applying linear regression model withrandom effect, accounting stability, asset to liability ratio, debt structuring, enterprisescale, corporate governance, and characteristics of industry are all concerned andtested. The result proves that debt structuring and internal financing make a positivesignificant influence, while accounting stability, enterprise scale, asset to liability ratioand investment opportunity have been confirmed their negative relationship to cost ofdebt financing. It is worthy to note that profitability, corporate governance, registeredaddress, characteristics of industry do relates to the cost. At the end of study,according to the conclusion of this article, we provide the suggestions about how toreduce the cost of debt financing of listed companies in China from four respects that the enterprise profitability, investment opportunity, the level of corporate governanceand financing structure.