Empirical Research On The Effect Of Debt Governance On The Perquisite Consumption

Recently, the perquisite consumption of executive arouses increasingly attention from public. February13,2012,"Interim Measures for the Supervision and Administration of the perquisite consumption of the executive of the state-owned enterprises" jointly issued By Ministry of Finance, Ministry of Supervision, National Audit office and SASAC. The approach regulates the perquisite consumption of the executive of the state-owned enterprises strictly. Therefore we can conclude that the government has already paid attention to the perquisite consumption. Certainly, this issue is not only contrary to SOE. but also exist in the other company. With the development of modern enterprise system, a growing number of enterprises employ professional manager in daily operation. This will inevitably bring about the separation of ownership and management and causing agent contradiction between shareholder and management. The major performance of agent contradiction is slack at work, over-investment and job consumption. As a result of imperfect contract, the perquisite consumption is rational and inevitability to some extent. However, the over-perquisite consumption would reduce enterprise benefit and distort market value without supervision and control. So, how to control the perquisite consumption is problem to solve.Debt financing is a main way of listed company to raise capital. For listed company, it is not only a financing instrument, but also a governance instrument. The effect of debt financing has reached a consensus among the western scholar and utilized in the daily running. Under condition that the executive do not own shares totally, debt financing is beneficial for them to increase shares proportion comparatively. Therefore, it’s can alleviate the conflicts of interest between the executive and shareholder and bring out positive incentive on the executive. Meanwhile, the increasing ratio of debt brings the financial pressure to the enterprise and reduces the cash which can be dominated by the executive. Thus, it restricts the executives’behavior.This paper research the relationship between the debt and the perquisite consumption. I expect to provide some suggestion for solving the perquisite consumption problem and establishing debt governance system.This paper is divided into six chapters, each chapter follows:Chapter1ExordiumThis chapter first introduces the background and significance of this paper, followed the ideas and framework of research are described. When analyses the relationship between the debt and the perquisite consumption in a new way, I take the source and maturity of the debt into account. In my study, I divide the samples by property rights and get two sub-samples.Chapter2Literature ReviewThis chapter reviews the literature both foreign and domestic about the impact of the debt governance on the perquisite consumption. This chapter helps us to know more about the relationship between the debt and the perquisite consumption.Chapter3Theoretical AnalysisThis part introduces definition and relevant theoretical basis. Then we analyze the correlation between debt and the perquisite consumption.In the concept part we define some major concepts of this paper, including debt financing, effect of debt governance, the executive, the perquisite consumption. The theoretical part introduce theoretical basis, including agency cost theory, free cash flow hypothesis, control theory.Chapter4Assumptions, Variables, Models and DataIn This chapter, firstly we make5assumptions about the effect of debt governance on the perquisite consumption. Secondly, this chapter sets the experimental and control variables. Then, in order to test the hypothesis, this chapter constructs3research models. Finally, this chapter describes the sample and data that empirical research using.Chapter5Empirical ResultsThis part includes descriptive statistical analysis of sample data, the model regression analysis and robustness test. The result shows that in the private ultimately controlled companies, debt has a significant negative impact on the perquisite consumption. However, in the government ultimately controlled companies, the relationship between debt and the perquisite consumption is not significant.Chapter6Conclusions, Policy Recommendations and Ideas for ImprovementBased on theoretical analysis and empirical results, the chapter reached the final conclusions of this paper as follow:1. In the government ultimately controlled companies,the debt has no effect on the perquisite consumption.2. In the private ultimately controlled companies, debt has a significant negative impact on the perquisite consumption.3. In the private ultimately controlled companies, both bank loans and commercial credit have a significant negative impact on the perquisite consumption, and the effect of bank loans is more significant.4. In the private ultimately controlled companies, both long-term debt and short-term debt have a significant negative impact on the perquisite consumption, and the effect of short-term debt is more significant.5. Existing remuneration system cannot control the perquisite consumption.The main contributions of this paper are:1. This paper analyses the relationship between the debt and the perquisite consumption in a new way. It takes the source and maturity of the debt into account, which enrich the existing literature.2. In this paper, when study the relationship between the debt and the perquisite consumption, it divides the sample companies into two categories, which can help us to know more about how to improve corporate governance of the companies in our country.