Managerial Entrenchment And Debt Maturity Structure

Debt financing is an important part of the finance of a corporate, and it is also part of the capital structure. Scholars extensively and deeply studied the optimal capital structure in the world, and formed many theoretical results. However, the studies see debt financing as homogeneous, that have no types and no maturity. With further research, some scholars noticed not only equity and debt financing have differences, but the debt financing itself also has significant differences. So it is necessary to study on the internal structure of the debt. The study of the internal structure of the debt financing involves several aspects:maturity structure, source structure and priority structure. One of the most studied is maturity structure, and this article also studied debt maturity structure.For the debt maturity structure, there are several theoretical results, such as the agency theory, information asymmetric theory, matching theory and the tax theory. These are all explaining the optimal debt maturity from the point of the maximization of the company’s value. However, the formation of a proper debt maturity structure is not an easy question in practice. Enterprise as the one side of the demanding for funds in capital market, it chose optimal debt maturity, but, in the process of obtaining debt, a country’s capital markets or the credit market may affect. In addition, the conflict between manager and creditor or the conflict between lager shareholder and creditor also affect the debt maturity structure.In our country, capital markets and credit markets are underdeveloped; moreover, the corporate governance is ineffective. First, Manager Entrenchment is widespread in company and it not only against the interests of the shareholders, but also infracted the interests of creditors. Short-term debt is an effective method of construing managers, but self-serving managers prefer long-term debt. Second, when ownership concentrated in several major shareholders, the controlling shareholders become the practical decision-makers. Lager shareholders violated the interest of small shareholders and also violated the interest of creditors. The result is that the creditor shorted the term of debt to defense the risk brought by managers and large shareholders.So the main content of this study views from the aspect of creditor, to study the relationship between manager behavior and debt maturity structure. One of the main contributions of this paper is considering the managerial entrenchment and large share holders affected on debt maturity structure. The other is analyzed from the perspective of the creditor protection, because the debt maturity structure is too short in China, and this result is actually not the select of company itself, some scholars have proven that short debt maturity detract the enterprise value, so this result is likely the result of creditors’ risk control.This paper divided into five parts, the first part is an introduction, mainly about the background of debt maturity structure and significant of the topic of this article, then, presented research clues and research methods.The second part is a literature review. Debt maturity structure is divided into theoretical research and empirical research. Theoretical research comes from the West, including the agency theory, asymmetric information theory, matching theory and tax theory. All these are to maximize enterprise value through finding the best debt maturity structure. Actually, the format of debt maturity structure of the company is not so simple, the result of debt maturity influenced by the aspect of the demand side on the one hand, on the other hand influenced by the aspect of fund providers. The empirical result shows that the debt maturity structure has close ties with institutional background. Latest research also shows that the debt maturity structure is also influenced by the "managers". As a result, we get the opportunity to study in this article, which combined with the background of creditor protection, to explore the relationship between manager and debt maturity structure.The third part is theoretical analysis. Managers and controlling shareholders are against the interest of creditors. In debt financing, managers have an incentive to choose long-term debt to alleviate the pressure brought by short-term debt, controlling shareholders will against the interest of creditors by "over-investment" or "lack of investment", however, the creditor anticipated these consequences, then take method to protect themselves. Under the weaker creditor protection recently, creditors will choose to shorten debt maturity to control risk, which leads to a short debt maturity in china’s listed company. The fourth part is the empirical analysis. And the fifth part is a summary of the article, including the contribution and inadequacies of this article.Empirical result show that:first, managers have incentive to choose long-term debt, but when the manager profit greater, the creditors expect that and will shorten debt maturity. A non-linear relationship shaped between manager profit and debt maturity structure. Fourth more, the short debt maturity in listed companies in china reflect the creditors’risk control. Second, when the largest shareholder take holder exceeds a certain limit, they are actually managers and positively related to its stake and debt maturity structure, which is contrary to the past results. The result may be that:first, in China’s listed companies, ownership is more concentrated, the first major shareholder not only have ownership, but also control rights, and they prefer long-term debt to short-term debt. Secondly, the shareholder takes more than35%are most governed by the state, due to some political reasons, these companies are easier to access to long-term debt. Thirdly, creditors invest funds to the company that have relatively dispersed shareholding, decisions are more likely determined by the management who is not entirely consistent with the interests of shareholders, creditors are more worried about the funds depredated by managers.