Local Government Intervention,DebtContracts And Corporate Investment

In recent years, some industries in our country are facing the challenge of excess capacity, they are including not only traditional ones such as cement, steel, shipbuilding, aluminium, flat glass, but also some emerging ones, such as photovoltaic cells, polysilicon, wind power equipment, etc. Take the photovoltaic industry for instance, dozens of photovoltaic industrial parks were set up in more than20areas in the past few years.11Chinese photovoltaic corporations were listed overseas in two years since2005. The huge profits are attracting more and more corporations to join in the crazy chase, in which private corporations are not only the industry pioneer, but also the main force of the industry. Behind these private corporations, there is a strong support from the local government through various ways of investment promotion and capital introduction, resulting in oversupply.Local government intervention for corporate investment has a lot of ways, in whichthe financing support has direct and profound influence. Bank loansare the corporations’ main source of funding in our country, and its credit decisions are subjected to the influence of local governments to a certain extent. Therefore, this article explores the influence of local governments intervention for private corporations’ bank borrowings, and in turn for private corporations’ investment, and analyze the influence mechanism between local governments intervention and the inefficiency of corporate investment.This article first summarizes the shareholder-creditor agency conflicts and debt financing’s effect on enhancing corporate governance under the background of the financial system in our country, then theoretically analyze the influence of local government intervention on private corporations’ bank borrowings and the effect of corporations’ bank borrowings on enhancing corporate governance and the corporate investment, and the influence mechanism. After that, the author has chosen one typical listed company, Suntech Electric, as the concrete analysis object, using the theoretical frame above to analyze this company’s financing and investment under local government intervention. Finally, we get conclusions of this paper on the basis of the analysis, make suggestions and summarize the limitations of this study.