Ultimate Ownership, Debt Maturity Structure And Its Governance

Debt governance effect is a constraint that supervise insiders of debtor, and protectthe right of creditor. Which, objectively, is good for the debtor’s governance mechanism.The relationship between debt finance structure and agency cost, is one part of debtgovernance mechanism. Creditors, who lend out the capital to their debtors, is asignificant external governance force. Under the framework of corporate governance,many mechanisms are indirect methods to govern firms and protect creditors, such asPick-out mechanism which can select better debtors, free-cash-flow tied mechanism, aswell as control right mechanism, and so on. Debt governance, to a certain extent, theexistence of creditors can constrain behaviors of moral hazard, produce debt governanceperformance, promote corporate value.Under the special background of Chinese capital market, based on the data of listedfirms during2006-2012, this paper empirically examines the debt governance in ourcountry. Due to the complicated agency cost is hard to differentiate and survey, we try topart the agency cost into two parts. One is observable and verifiable which we name itA-type agency cost, another one is observable but unverifiable, which we name it B-typeagency cost. Then, we go to empirical research deeply. We find that part of debtgovernance exists in our nation. And the debt governance also is influenced by itsmaturity structure and ultimate ownership.Concretely, the debt of our nation’s SMSEs can constrain A-type agency cost andB-type agency cost notably. It means, on the whole, there is debt governance in ourcapital market. On the basis of SMSEs’ poverty right, we found that debt can restrain bothcost in central government owned enterprises and private firms. However, localgovernment owned enterprises sample shows a weak debt governance. Debt can onlyrestrain the A-type agency cost. From the aspect of debt structure, we found that,short-term debt shows a decisive effect in the debt governance, owing to the unbalance ofdebt structure, which short term debt is the major part in the public firms’ debt. SMSEs’short term debt can restrain both agency cost, but long term debt cannot. Our results cansupport the hypotheses, and we raise policies and suggestions to improve our debtgovernance.