Effect Of Debt Financing On Sustainable Growth Of Enterprise

As an emerging capital market in China, Growth Enterprise Market (GEM) consists ofsmall and medium enterprises and high-tech enterprises, which have great potential ofinnovation and growth. How to maintain an appropriate sustainable growth is a generalproblem of GEM enterprises. Debt financing, one important financial plan, will influence thesustainable growth rate of the enterprise. Therefore, making an efficient debt financingstrategy has a great effect on the sustainable and healthy development of GEM enterprises.Adopting document research and case study, this paper firstly reviews theories aboutsustainable growth model, the relationship of company growth and financing structure, debtfinancing and companies’ growth; then based on the researches of worldwide scholars, applieseconomics and management theories in the analysis to find out how debt financing influencesustainable growth rate. The analysis shows that debt financing effects sustainable growth rateby directly influencing the financial resource and influencing company’s operating efficiencythrough altering behavior patterns of managers and owners. The paper chooses three GEMenterprises as the cases to analyze the effect of debt financing on sustainable growth. Basedon the analysis, the paper makes some suggestions about debt financing strategy to theenterprises of GEM. The paper suggests that when GEM enterprise raising debt capital, thescale of liability should be controlled within a reasonable range; long-term liabilities shouldbe increased while the company plans to carry out large-scale investment and short-termliabilities should be increased while the company plans to focus on operating activities; thecompany should build up the debt with bank loans, and reducing scale of trade creditcontributes to the growth of company.