The Influence Of Bank Loan On Corporate Investment Behavior Under Soft Budget Constraint

Soft budget constraint is one of the typical characteristics of transition andemerging economies. There has been shown that the presence of soft budgetconstraints will distort the microscopic behavior of enterprises. China’s capital marketis regarded as emerging and transitional market, which offers us a good opportunity tostudy corporate investment and financing behavior under soft budget constraint.Under the circumstances that bank loan is the major source of funding for capitalinvestment of listed companies in China and corporate bank loans investmentdecisions may be largely affected by government action, whether the banks play theircreditors oversight functions and inhibit listed companies’ over-investment behaviorthrough debt constraints governance role? In this paper, we use both method oftheoretical analysis and empirical analysis, to discuss the impact of China’smanufacturing industry listed company bank loan on investment under soft budgetconstraint.Based on the principal-agent theory and the theory of asymmetric information,this paper analyzed the mechanism of how debt impacts capital investment of acompany, and analyzed the mechanism of how the soft budget constraint has impacton the company’s debt and investment relations wh en taking soft budget constrainttheory into account. In consideration of the duality of how debt will affect corporateinvestment, our empirical research tested the relationship between companies’ bankloan and its investment in China’s listed companies g rouped by corporate growth, andanalyzed the mechanism behind respectively; while introducing ownership controldummy variables to examine bank loans’ governance function under different softbudget constraint expectation. It turned out that bank loan of C hinese listedcompanies could play governance function towards capital investment on the whole;and compared to the non-state-owned listed companies, state-owned listed companies’bank loans play weaker governance function to inhibit investment expansion; andcompared to the state-owned listed companies controlled by the central government,the inhibition of the bank loan towards investment expansion among state-ownedlisted companies controlled by local governments appeared to be weaker.Finally, the study made the following policy recommendations: governmentshould weaken the direct intervention towards the financial industry in China gradually; Banks should deepen the bank reform and encourage diversification ofbank competition; State-owned corporate should harden corporate soft budgetconstraint and optimize corporate internal governance structure; Put great effort onthe construction of the bond market in order to broaden corporate financing channels.