Marketization Process, Debt Financing And Corporates’ Inefficient Investment

Corporates’ investment is an important financial behavior which is the basis ofbusiness growth and the impetus of value appreciation. According to the National Bureauof Statistics, the average annual increase of the total social investment in fixed assets inChina closed to24%, meanwhile, investment took up more than50%of the GDP in thisdecade. However, this growth rate and the total size do not reflect the efficiency ofcorporates’ investment. In recent years, the low efficiency of investment is revealed incorporates in our country. Inefficient investment behavior is a common problem that canbe classified into under-investment and over-investment. Inefficient investment behaviorinfluences the efficiency of corporate funds, the promotion of enterprise value and thehealthy development of the capital market. How to improve the efficiency of corporates’investment has become the focus of academic attention. Debt financing is anotherimportant part of capital movement and there is a close relationship between debtfinancing and corporates’ investment efficiency. Based on the theory of agency problemsand asymmetric information, the theoretical results and empirical evidence of corporates’debt financing reduce the inefficient investment behavior are abundant. But the way to getdebt financing is limited in our market. Bank loans and commercial credit are the twomain ways which are different in the body, methods, objects, features, etc. Are there thesame or similar influence mechanisms to affect inefficient investment? Property Rights isan important institutional factor in our country. Are there differences in the behavior ofinvestment and financing Between SOEs and non-SOEs? As macroeconomic governancefactors, marketization process is considerable different in various regions of China.Whether do the differences in the process of marketization can affect the relationshipbetween debt financing and inefficient investment?Based on the marketization process and institutional background in China, Thisarticle theoretically analyze the relationship between debt financing and inefficientinvestment and empirically test the impact of debt financing on corporates’ inefficientinvestment using panel data from2006to2012year of listed companies. The results showthat:①The overall level or different sources of debt financing that involve bank loansand commercial credit can alleviate corporates’ under-investment, which is moreprominent in the non-SOEs.②Debt financing cannot restrain over-investment, which ismore serious in the SOEs. Distinguishing by debt sources, on the one hand, bank debts do not restrain the over-investment, which is more severe in the SOEs. On the other hand,commercial credit can exercise its role of restricting over-investment which issignificantly stronger in the non-SOEs.③This article further analyzes the mechanismsthat marketization process affect the relationship between debt financing and inefficientinvestment behavior. On the one hand, from the perspective of easing under-investment,the function that debt financing alleviate corporates’ under-investment is stronger in theareas which have a higher degree of marketization. Distinguishing by debt sources, thefunction that commercial credit alleviates corporates’ under-investment is stronger in theareas which have a higher degree of marketization. But the function that Bank loansalleviate under-investment is weaker in the areas which have a higher degree ofmarketization. On the other hand, from the perspective of restraining over-investment,Regardless of whether companies belong to higher or lower degree of marketization, debtfinancing fail to exercise its role of governance on the over-investment, there are notobvious differences Between SOEs and non-SOEs. Distinguishing by debt sources, thefunction that commercial credit exercises its role of governance on the over-investment isstronger in the areas which have a higher degree of marketization. But bank loans fail toexercise its role of governance on the over-investment where the areas which have ahigher degree of marketization are more severe than the areas which have a lower degreeof marketization.