| Investment and financing decisions are two basic parts of the Business activities. They are closely related. Debt is not only an important source of financing, but also an important corporate governance mechanism. The relationship between the debt governance and investment behavior is becoming a controversial topic of many studies. Different from the western countries’ developed credit system and bond market, China’s market economy is still in the primary stage and the bond market is still in a period of exploration and development. Both these factors make our country’s credit markets are difference with the developed credit markets. So there must be a more complicated relationship between the liabilities level and the overinvestment behavior.In present empirical researches, whether the debt financing would play an important role in controlling the overinvestment behavior is still controversial. Many contradictions exist at the empirical results and the conclusion remains to be inspection. On the basis of the related literature, this paper does a research of the effect which debt governance on the overinvestment behavior with the data of Chinese manufacturing listed companies.The main contents of this paper:The first part is introduction which mainly introduces the research background, significance and the main problems. As our country’s bond market and loan system are not perfect, the problems such as overinvestment behavior are popular especially in state-owned companies. This paper mainly studies three key problems about the debt governance:the first problem is verifying the influence of debt term to overinvestment behavior. The second is testing whether debt financing can effectively restrain the enterprises’ overinvestment behavior. The third is research whether the different ownership structure could affect the debt governance effect or not.The second part is the literature review. In this part the author summarized both the domestic and foreign papers of this research field. The abroad papers mainly constrain three parts of studies:the costs of debt financing, the efficiency of debt governance, the relationship between debt term and the overinvestment behavior. In the domestic research, scholars mainly focused on testifying the negative correlation between debt levels and investment scale. But a few paper research whether the debt financing could control the overinvestment behavior. In the last, this paper summarizes the current domestic and foreign findings on the relationship between the debt financing and corporate investment behavior.The third part is theoretical analysis. The theory of this paper mainly involves the investment behavior theory and the financial structure theory which contains the agency cost theory and information asymmetry theory. In western countries, the debt system is developed, so most scholars’study focus on agency costs of debt which cause underinvestment hypothesis. In the emerging markets in developing countries like our country, most scholars’study focus on the governance effect of debt financing which can control overinvestment behavior.The fourth part is empirical research. First of all, this paper put forward four hypotheses. Hypothesis1:long-term liabilities are inclined to lead overinvestment behavior. Hypothesis2:in our country, debt has a weak control of overinvestment behavior. Hypothesis3:in state-owned enterprises, the results of Hypothesis1and Hypothesis2are more significant. Hypothesis4:the separation of controlling right and cash flow right may lead a more significant result of Hypothesis1and Hypothesis2. Second, use the debt structure model and the debt level model to test theses hypotheses. Finally, summarize and analyze the test results.The fifth part describes the research conclusions and put forward policy recommendations. In our country, the effect of debt governance on overinvestment behavior is weak. At the same time, in the state-owned enterprises this result is more significant. The separation of control right and cash flow right also lead this result more significant. Based on this conclusion, this paper put forward some recommendations to improve the efficiency of debt governance. On the one hand, we should reduce government intervention to the company. On the other hand, the behavior of the dominant stockholder of listed companies should be regulated to prevent they damage the interests of other shareholders.Innovation of this paper:First, most research accept that debt financing will affect the enterprises’ investment behavior and test the negative relationship between debt financing level and the enterprises’ investment scale, but this paper verify the efficiency of debt governance. Second, there are few studies use debt maturity structure to discuss the relationship between debt financing and overinvestment behavior. This paper based the debt structure model to test this hypothesis and make a conclusion that the long-term liabilities could increase overinvestment scale. Third, using the degree of separation of control right and cash flow right to measure the confliction between dominant stockholder and other shareholders, proved the efficiency of debt governance under the equity concentration background.The deficiency of this paper:First, the performance of investment behavior are various, such as overinvestment, underinvestment and asset replacement, etc. this paper only studies the governance effect of debt financing on overinvestment behavior, but not analyzing the underinvestment behavior and asset replacement behavior. Second, the measurement of enterprise investment scale is various. This paper only measures the absolute investment scale, but not involves the investment volatility. Third, this paper has some problems of data. In this paper, the author select manufacturing companies in2007-2012as sample, which caused the ignoring of other industries; due to a large number of private small and medium-sized private enterprises is not included in the sample, this paper makes the research results biased. |
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