Debt Covenants Elements Can Suppress Excessive Investment Company

After the setting up of company debt contract, information asymmetry between parties to a contract may harm creditors’legitimate rights and interests, these risks may become more extrude when companies encounter financial crises or management opportunism behaviors. Therefore, based on considerations of reducing debt default risk, creditors need to consider limiting company investment behaviors and adding this term in contracts.creditors may also consider change the amount of debt maturity to protect there own interests. these policies influence the company creditors investment efficiency directly or indirectly.The author tries to introduce the existing related literature at first. based on the principal-agent theory and information asymmetry theory, the author analyzes the relationship between debt contract and investment efficiency in theory, and the author illuminates the investment spending theory based on elements of the debt contract. On the basis of the theoretical analysis and hypothesis development, the author builds the investment decision generation model with debt contract bindings, the author makes the corresponding data of Chinese listed companies from2005to2007as sample data, and conducts empirical analysis by using two-stage OLS regression method. the Study finds that China’s debt contract elements’ binding factor has yet to make obvious effect in limiting debt enterprise investment decision; On the contrary, companies with higher the amount of the debt, higher the debt ratio and higher the net tangible assets of companies often tend to be more aggressive in investment. Further research shows that because of the transformation of China and emerging market economy background, the legitimate rights and interests of the creditors have not been effectively protected by shareholders and management. Based on the theoretical analysis and empirical test results, the author finally puts forward the. theories of the governance mechanism with creditors’participating, strengthening the legal protection of creditors’ rights and interests, and improveing the governance debt contract. all these theories can effectively improve the enterprise investment efficiency.