Debt Financing And Firms’ Inefficient Investment Behavior In View Of Debt’s Heterogeneity

Financing behavior and investment behavior, as major corporate financial activities, support the functioning and growing of enterprises and have became the focus of theorists and practitioners. Although there have been some studies about the debt financing and firms’ inefficient investment, but not a unified conclusion. With the deepening of China’s economic transformation and the accelerating of market processing, the relationship between debt financing and firms’ inefficient investment deserves to be discussed. Therefore, this paper will be based on China’s unique institutional features, explore how the debt financing impacts firms’ inefficient investment in order to provide reference and inspiration to our manufacturing listed companies for using the debt financing controlling the inefficient investment issues.This paper contains the following six sections:The first part is an introduction which outlines the background and significance of this topic, explains the related concepts and describes the innovation.The second part is a literature review which introduces foreign and domestic researches on debt financing and investment behavior so far from the angles of asymmetric information theory, principal-agency theory and governance role of debt financing and then concludes and reviews them.The third part is the theoretical basis, impacting mechanism and related hypotheses. On the basis of theory, it summarizes the impact of debt financing on the inefficient investment and makes relevant assumptions.The fourth part is the empirical research design which determines the study sample, selects the study variables and designs the models according the hypotheses.The fifth part is empirical test. First of all, distinguish the over-investment and under-investment companies and test the relations between debt financing and inefficient investment behavior from the angles of the debt financing scale, debt maturity structure and debt sources respectively. Secondly, distinguish state-owned and private-owned firms and test the influences again.The sixth part is the summary and recommendations which summarizes the conclusions according the empirical results, makes suggestions, and points out the inadequacies of this paper.Through theoretical analysis and empirical testing, it has found that debt financing in general showed no effect on the firms’ inefficient investment behavior. However, in the matter of the maturity structure of debt financing, short-term debt could inhibit over-investment, cause under-investment, long-term debt increased corporate’s over-investment. In the view of the source of debt financing, while bank loans led to over-investment behavior, but also led to under-investment behavior, commercial credit showed certain governance role to firms’ inefficient investment behavior.The innovations of this paper lie in the following two points:First, considering the heterogeneity of debt financing, diversifying research perspective.it studied the relationship of the debt financing and firms’inefficient investment behavior from the angles of debt’s scale, maturity structure and source. Second, in the course of the study, it investigated how the nature of firms influences the results.