Reaserch On Soft Budget Constraint Of Debt Leverge And Corporate Investment

Recent years, with rapid development of economy as well as the quick expansion of the scale of investment in China as a whole, as a common phenomenon in socialist state, soft budget constrain is also inevitable in our country, which is even more outstanding, during the critical transition phase of market economy. Some scholars note, in the framework of capital structure, budge constrain can be hardened effectively by debt financing, economic efficiency can be improved; the capital structure of the enterprise can be optimized meanwhile. Debt financing, as an efficacious financing tool, its management function has been proved. And "hard budget constraint" is considered to be the most significant element which implement the function of debt management, which is regular debt payment and interest. In the transformation of economic system, creditors still stick to planned economy way of thinking, which could lead to many problems, such as keep putting money in or provide support to those losing enterprise. Those specific behaviors of soft budget constraints mentioned above definitely will compromise the effectiveness of debt management. In China, soft budge constraint can cause many negative impacts, for instances, impairing the credit of state-owned enterprises, impeding the development of market economy, thus the biggest obstacle to capital structure optimizing. Based on the study of the relationship between enterprise debt and investment efficiency, we found that it is the benefits of control right that triggered or aggravate constraint of soft budget. Control right seized by enterprise manager could give rise to excessive investment behavior, consequently, resulting expansion in debt, generating and aggravating the soft budget constraint behavior.In this paper, the author compared enterprises with different properties and different control levels so as to put forward and study the proposition of the thesis per descriptive statistics and regression method. The control rights are the main reason for soft budget constraints. The author found, private enterprises and enterprise investment is negatively related to debt ratio, debt ratio of state-owned enterprise is positively related to enterprise investment, somehow, debt management failed to achieve the result it was supposed to achieve to some extent.Meanwhile, we also found that debt constraint in state-owned enterprises of fiscal decentralization is stronger than central state-owned enterprises. With regarding to the conclusion we came up with in this paper and the current economic environment in China, with the help of the theoretical and empirical study conducted by the author, suggestions on how to improve the soft budget constraint conditions have been proposed, which including advices on how to consummate bank system reform, establish manger market system, develop corporation financial claim market, improve corporation management. Beside, the author also brings forward the shortcomings in this paper and summary of whole theory.