Corporate Diversification, Impact Of Boundholder And Liability Structure

The study of diversification and liability structure at the corporate has developed for long. Recent literatures focus on the relationship between these two corporate decisions. This paper based on the perspective on interest counterbalance between shareholders and creditors attempt to find out the impact of the counterbalance on the corporate governance. Because of shareholders’ and creditors’ egoism the benefit conflict between them existed and it effected on corporate strategic and liability. Diversify strategy and liability arrangement make together become an essential section of corporate operation. And the role shareholders and creditors play at the corporate will be a good point during the governance. Previously, empirical financial studies paid little attention to the cause made by stakeholders of the connection between diversification and liability. The implications of my findings are not very similar with that they explain earlier results on the effect of diversification on liability, which will contribute something complementary to relevant research.This paper analyzes our real characteristics of ownership structure and creditor structure and find that they are both highly concentrated. Then, during the empirical test, it is found that the counterbalance between shareholders and creditors has obvious influence on corporate diversification and liability decisions. In the following empirical statistics, this research firstly elaborate and analyze the potential effect of corporate diversification on liability, combine present theories with practical characteristics of our corporate ownership structure and creditor structure and propose four theoretical hypothesis. This research support that corporate diversification can improve debt capacity because of the improvement of its operation, so diversification has positive influence on both debt level and long-term debt level. In Particular, shareholders’ and creditors’ participation will strengthen such influence, since when ownership structure concentrated more than creditor structure,conflict between shareholders and creditors will be intensified,that will weaken the corporate’s debt capacity. On the contrary, when creditor structure concentrated more than ownership structure, that means debtholders know more about the corporate which can relieve the conflict between them, that will be good to increase the debt capacity.This paper aim to find out the impact of corporate diversification on it’s debt ratio and debt maturity for a sample of all the listed firms in China during the period 2007-2012. And examine the counterbalance between shareholders and creditors will strengthen the impact, which fit the four hypothesis. At last both the estimation results and robust test support the research hypothesis and make some major conclusions:(1) Along with deepen degree of corporate diversification, corporate risk resistance capacity raise, its operating development improve, debt capacity increase and so with the debt ratio.(2) Debt payment risk decrease as a higher degree of corporate diversification. Therefore, corporate is able to get more long-term debt finance which increase its debt maturity.(3) Almost all the listed firms in China have a large creditor — bank. A higher value of the proxy of counterbalance means the large creditor participate more in corporate governance,get more information of the firm and have a more efficient management in debt risk controlling. Such a large creditor will be willing to supply more debt and long-term debt.(4) Compared with non-diversify firms, corporate diversification singularizes the effect of the counterbalance between two stakeholders on liability.This research is designed as follow: There are five separate parts. Chapter 1 is preface which introduces the background, motivation research value, originality, research process and the major framework. Chapter 2 is literature review which summarizes the previous studies on corporate diversification, liability and the relationship between ownership structure and creditor structure. Also, attempt to make some primary conclusions of the theoretical explanations for this paper. Chapter 3 is practical analysis on diversification and liability which discusses our present characteristics of ownership structure and creditor structure that lead to the research purpose. Chapter 4 is the empirical analysis on the impact of diversification on liability structure which makes theoretical explanation, present hypothesis, estimate panel model and gives some robust test. Chapter 5 is conclusion and inspiration which depicted the major conclusions, political proposals, deficiencies of this paper and something perfectible.