A Study On Government Intervention And Corporate Financing Behaviors Based On Industry Life Cycle Theory

Adequate financial support is a key point in the development of a company. The financial market in China is gradually completed and companies have more and more choices in financing behaviors. Different financing methods have different costs and benefits. Therefore, scholars never stop trying to find the best financing methods so as to maximize the value of companies. Life cycle of industry describes the development of an industry in detail. China is in an overall transformation stage, companies in different life cycle are faced with different policies. Therefore, companies in China are affected by industry and government together. The selection of financing methods has its unique features.This paper is guided by capital structure theories and industry life cycle theories and study how companies in different life cycle choose different financing strategies. Firstly, this paper divides industries into three life cycle stages according to the criterion made by Anthony and Ramesh (1992). This paper discusses the relationships between government intervention and financing behaviors of companies in different life cycle stages.Government intervention includes direct intervention and indirect intervention. They are measured by the proportion of state-owned shares and index of government policies. This paper also takes several important financial factors of companies into consideration to study how financing behaviors of companies are affected. The results in this paper indicate that companies in different stages prefer different financing methods. In growth stage, companies prefer financing by equity and bank credit. In accumulation stage, companies prefer bank credit to equity and internal financing. In adjustment stage, companies mainly use bank credit and internal financing Generally, bank credit and equity are playing the most important role in financial market in China.In addition, the significance of factors affecting financing behaviors of companies differs among different stages. For example, state-owned share is significant in accumulation stage but insignificant in adjustment stage. Index of government policies are positively related to the selection of financing methods in growth and adjustment stages. This relationship is reverse in accumulation stage. It means that in accumulation stage, if government uses "encourage" policies, companies prefer internal financing while companies prefer external financing if government takes "limitation" policies.