The Nature Of Corporate Control, Agency Cost, Debt Structure

Corporate finance is an important area of modern financial theory, and debt financing is an important form of corporate financing. Governance effect of debt financing has been widely confirmed, the choice of debt structure that will accompany has become an urgent improved subject. Since the debt has difference, and companies can choose more debt financing, therefore different companies have different debt structures, which is the real problem with the financial markets developing. The choice of debt structure stems from the analysis of influencing factors, which has great significance for optimizing corporate debt structure even capital structure. In1980s western scholars mainly research the factors of influencing debt structure, and form three hypotheses:the agency cost hypothesis, information asymmetry hypothesis and tax hypothesis. In recent years scholars have begun to study the factors of impacting debt structure and examine the application of these three hypotheses in our country. Previous scholars have achieved some results, but previous studies have focused on one theory, such as the study of relationship between the agency costs and debt financing. Due to the nature of corporate control and agency cost influence the debt structure mutually. This paper will summarize and refer previous research, combining with our country’s condition, based on agency cost and nature of corporate control, studying the debt structure of China’s listed firms.This paper studies this problem based on Shanghai and Shenzhen stocks A-share listed companies from2004to2013. It uses descriptive statistics, correlation analysis variables, univariate comparative and multivariate regression analysis for empirical analysis of the nature of corporate control, agency cost and debt structure.Through the analysis, we believe that:Firstly, by univariate comparative analysis of state and non-state holding listed companies, it found that the agency cost and debt structures are different over the different nature of control companies. It can be drawn:the nature of corporate control is an important factor affecting the choice of debt structure of our listed companies.Secondly, compared to non-state-owned holding companies, state-owned holding company have higher leverage ratio, higher rates of long-term debt, higher long-term non-public debt.Thirdly, management shareholding have no significant relationship between corporate leverage and debt maturity structure, but have a negative correlation with debt placement structure; free cash flow is negatively correlated with debt maturity structure and positively correlated with debt placement structure.Fourthly, the nature of corporate control and management shareholding have offset effects for leverage, no significant effect with debt maturity structure and debt placement structure; free cash flow and corporate control have enhanced effect for leverage, but no significant effect with debt maturity structure and debt placement structure.In view of this, we propose the following recommendations:Firstly, management shareholding of China’s listed companies is very low, with improvement of management stake; it can weaken the agency problems between managers and shareholders, thereby reducing agency costs. In addition, the company increased public debt financing can reduce agency costs.Secondly, when the companies have ample free cash flow, reducing debt and increasing short-term debt and private debt financing can reduce agency costs between management and shareholders.Thirdly, to higher percentage of management shareholding of state-owned holding company, reducing the company’s debt ratio can reduce agency costs; to cash-rich of the state-owned holding company, increasing debt ratio and public debt financing can reduce agency costs.