The Financial Background Of Senior Executives、Financial Constraints And Investment Behaviors

The problem of financing constraints of the private enterprise has become a platitude. Although the national policies encourage and support the development of small and medium private enterprises, but because of its small size, the development of uncertainty, the considerable risks and the insufficient transparency of information, the SMEs are always in the dry tree. After years of development, the private-owned companies have gradually overcome some inherent disadvantages and become an important part of the national economy. However, SMEs are still facing difficulties in financing. There is not enough funds for them to develop themselves. Because of China’s financial system, the financial market and the property protection system are not perfect, let along the lack of credit of the private enterprises,they are suffering from the so called "discrimination".Besides, as the state-owned commercial banks prefer to supply money to the state-owned enterprises, the financial needs of private enterprises are often being ignored. In short, the living environment of those SMEs is not optimistic.In order to ensure their own business, private enterprises have to start searching some ways outside the system to solve their own problems. A new financing channel appears-financing based on relationships. As we all know, the thousands of years’ Chinese traditional culture affects all aspects of our social development, and the "relationship" culture is one important part of it. For a country that values social networks,"relationship" is not only a way of earning mutual benefits, but also an effective mean to get resources. It impact both on people’s behavior and the behaviors of the companies. In order to build a relationship between the company and the government, some SMEs employ managers who have political backgrounds. And many scholars found that this kind of relationship can reduce the corporate tax burden and alleviate the difficult situation of corporate financing constraints. But as for financing, the more direct banking relationship is employing executives who worked in banks before. Some studies can ease the financing bottlenecks.But as the researches develop, the scholars found that the political relationships will bring some unexpected outcomes to the private-owned enterprises. Because of the government performance evaluation mechanism, some managers who have political backgrounds will be forced to collaborate with the government which will lead to the over-investment behaviors of the companies. And this kind of behaviors of course will harm the benefits of the enterprises. However, the background of working in bank (financial background)is different from political relationship, its influence and role will inevitably be different. Therefore, based on the theories of asymmetric information and credit rationing, this paper studies some points as follows:1.The relevance between the financial background of the top executives and the financing constraints.2. If a better economic environment can act as a substitute.3. The different effects of alleviating financial constraints produced by different financial backgrounds. Besides, this paper also studies how the financial backgrounds influence the investment behaviors of the private-owned companies.This paper contains6main parts as following:1.Introdiction.2.Related theories and literature review.3.Questions and Hypothesis.4. Empirical research.5. Research conclusions and policy suggestions.6.Future research prospects.Through the analysis, we get the conclusions as follows:1.The existence of the financial background is a widespread phenomenon among china’s private-owned enterprises. This kind of relationship can alleviate the financing constraints.2. A better economic environment can play a substitute role of financial background, especially for the backgrounds produced by outside top managers (independent directors).3. The financial backgrounds of the inner top managers will cause under-Investment of the companies.Above all, the contribution of this article contains theories part and empirical part. First, this paper measures the backgrounds from internal executives and independent directors, and we found that alleviation effect of the independent directors is better than the internal top managers. Second, this paper divided the financial background into three categories (stated-owned banks, other banks, other financial institutions) and found that the stated-owned banks background works better than other backgrounds. Third, comparing to the political relationship, the financial relationship brings different influence to the investment behaviors of the private-owned companies---it will lead to under-investment behaviors because the top managers have professional finance knowledge and they also don’t want to damage their reputation. Besides, in order to keep a long term and stable relationship with the banks, the managers, especially the internal managers who operate the company will use the funds as cautious as possible as the banks are always aimed at earning benefits.