Diversified Equity Investments In Subsidiaries Of Listed Parent Companies And Debt Distribution Structure

In order to implement the strategy of diversification, listed companies tend to form the current characteristics of diversified equity investments in subsidiaries by means of acquisition and the establishment of subsidiaries. Diversification strategy can make listed companies establish a more effective internal capital market, improving the efficiency of capital utilization. The characteristics of equity investments can make the company’s cash flow allocated in parent-subsidiary longitudinal level, and diversified business provides the basis for lateral transfer of cash flow between each subsidiary. Therefore, listed parent companies expand the boundaries and sizes of internal capital markets by diversified equity investments, which leads to a more apparent effect of internal capital markets.At the same time, with the diversification of equity investments in subsidiaries, the listed parent companies will get the corresponding resource advantages such as ownership under the mode of light operation, good reputation by diversified equity investments, social relations of minority shareholders in the subsidiaries, social capital brought by the introduction of new shareholders and so on. These resource advantages will affect the company’s debt financing. Consequently, what kind of impact will diversified equity investments in subsidiaries of listed companies have on distribution of the debt between parent and subsidiary companies? Based on above, this thesis focuses on the following:(1) Compared with the non-equity-investment oriented companies, what kind of effect will diversified long-term equity investments in subsidiaries of the listed parent companies have on corporate debt structure? (commercial credit financing, short-term bank loan, long-term interest-bearing liabilities) (2) Whether diversified long-term equity investments in subsidiaries of the listed parent companies will affect the distribution of different types of debt between parent-subsidiary? (3) What kind of further effect will financing costs and parent company’s control over subsidiaries have on the distribution of debt between parent-subsidiary? (4) What kind of impact will the debt distribution formed under diversified equity investments have on corporate governance?Previous studies on relation between diversification strategy and debt financing view the merging listed companies as a whole and examine whether the listed company’s overall diversification can ease the financing constraints and improve the financing ability and governance effect of debt,neglecting enterprise group formed by parent-subsidiary itself. Internal capital markets in parent-subsidiary level may ease the financing constraints and enhance the financing ability, and diversification strategies play a more apparent role. Under the background of diversified equity investments, this thesis deeply analyzes the internal mechanism of debt financing, bringing new ideas for studies on influencing factors and economic consequences of debt financing, and really explain inherent nature of the impact of diversification strategy on debt financing, so as to provide theoretical basis for the choice of enterprise diversification strategy.In this thesis, the study finds that:1. The higher the degree of diversified equity investments in subsidiaries of listed companies, the higher the company’s short-term bank loan ratio and commercial credit financing; 2. The higher the degree of diversified equity investments in subsidiaries of listed companies, the more concentrated in the parent company of the short-term bank loan ratio and commercial credit financing; 3. When the company’s debt financing costs rise, the company’s short-term bank loans to the parent company centralized trend will be reduced, and the commercial credit financing is further focus on the parent company. When the parent company’s control over subsidiaries rise, the centralized trend is more obvious; 4. The distribution of short-term bank loan under diversified equity investments in subsidiaries of listed companies will effectively restrain their excessive investment behavior.Research significance of this thesis:1. Study on whether the internal capital market formed under diversified equity investments in subsidiaries of listed companies have an effect on the composition and distribution of debt financing;2.Study on the effect of diversified equity investments ion debt financing, which expands the study of influencing factors of debt financing and enriches the research perspective of diversification strategy;3.Study on governance effect of debt financing under the perspective of diversified equity investments, providing new evidence for the usefulness of debt contract and new empirical support for diversification strategy of listed companies.