The Construction Of Xz’s Investment Systerm On The Backgroud Of Financial Constraints

Private enterprises are important components of China’s economy, and they have made outstanding contributions to the the promotion of the overall economic development as well as employment. However, it is widespread that the existence of private enterprises is so short.On the one hand, the situation of macroeconomic and the capital market environment play important roles. In the context of the special regime, private enterprises are faced with more severe financing constraints as opposed to state-owned enterprises, which affects the normal conduct of investment activities and the continuity of business.On the other hand, problems existing in enterprise investment also are reasons for the failure. The conflicts between shareholders and creditors cause inefficient investment, and enterprise has not set up perfect investment system to regulate the behavior of investment.Based on the example of XZ company’s reconstruction caused by the failure of the investment project, This paper analyzes the problems of financing constraints existing in the investment activities of private enterprises. Firstly, this paper analyzes the current situation of the company’s financing constraints in financing channels and financing costs. Financing channels mainly are confined to private capital and the money of preselling. The constraints of financing costs, not only reflect higher returns on capital, but also involve the related legal costs. Secondly, this paper studies the effect of financing constraints on the corporate investment behavior. XZ company didn’t appear a shortage of investment due to financing constraints which scholars studied previously. Instead, due to shareholders-creditors conflict, XZ company appeared investment issues which manifested in the form of asset substitution. Under the influence of external financing constraints and internal investment issues, the capital chain breaks and leads to reorganization or liquidation finally.This paper focus on the construction of investment system in the company. XZ company didn’t have development strategy, its corporate governance structure is imperfect and financing decisions is lack of planning. There are different problems at all stages during the implementation of the project. In response to those problems, the construction of construction of investment system in XZ company should plan strategies for guidance, build governance structure for foundation, make financing decisions for protection, implement the project for dependence. This paper makes proposals on establishing and improving investment system from three aspects on corporate governance structure, financing decisions and investment process of the project.Hope this paper can provide some guidance for financing decisions.