The Influence Mechanism Of Balancing Liquidity Risk And Business Performance On Financing Structure

The financing structure of China Railway Co.,Ltd.has obvious characteristics of high liabilities,and the liabilities mainly rely on commercial credit financing.By the end of 2017,the total assets of China Railway were 844.1 billion yuan,of which the total debt was 674.4 billion yuan and the ratio of assets to liabilities was as high as 80%.Among them,notes payable,accounts payable and advances payments totaled 421 billion yuan,accounting for 62%of the total liabilities.The interest expenditure brought by high financial leverage would certainly increase the pressure of cash flow,while the investment scale of construction enterprises' assets were huge,but the liquidity level of assets was perennially low,and the spontaneous cash flow tended to be tense.Large-scale receivables are hard to recover and inventory backlog,and the pressure of debt repayment brought by high financial leverage will cause enterprises to face the problem of financial liquidity risk out of control.At the same time,as a listed state-owned enterprise,the management of China Railway faces the performance appraisal of capital market and SAC at the same time.The increased financial cost of high financial leverage will squeeze the profit space and affect the operating performance indicators.Based on the above research phenomena,this paper draws a research question:What is the internal motivation of the management's decision-making on financing structure?What factors determine that China Railway has to choose a financing structure with high financial leverage and interest-free debt ratio to support operation and industrial expansion?How do managers design financing structures to meet the dual demands of liquidity risk management and performance management?This paper bases on the logic of "business determines finance".Firstly,the paper starts from the financial liquidity risk point of asset allocation.Based on the industry universality of asset allocation at three levels:asset size,term structure and business model,this paper analyses the causes of financial liquidity risk.The paper then uses the theoretical analysis paradigm of resource allocation matching to explore how managers design financing structure and asset allocation matching based on liquidity risk management to control the overall liquidity risk.At the same time,based on the perspective of business performance management,this paper simulates and calculates the pulling effect of financing structure on business performance indicators around the inherent logical relationship between the return on equity and economic value added.Finally,the paper focuses on the trade-off between liquidity risk and business performance,and explores the financing structure decision-making mechanism of management.Through the study of this case,it is found that the essence of the operation mode of high debt and high commercial credit financing is the result of management's balancing decision-making based on financial liquidity,return on equity and economic added value.That is to say,the motivation of this financing structure design lies in the comprehensive management of liquidity risk and operating performance.(1)Based on the liquidity management,there is an inherent relationship between asset allocation and financing structure.The financing structure with high leverage and interest-free debt ratio can match with the asset allocation of construction industry to control the overall liquidity risk of enterprises.(2)On the basis of guaranteeing the liquidity level of enterprises,management further utilizes this financing structure to compensate for the loss of performance caused by the low operating efficiency of construction enterprises themselves,and to meet the double assessment requirements of capital market and SAC's operating performance.And with the use of debt-to-equity swaps,reduce the interest-bearing debt ratio of capital operation,implementing the central enterprises'leverage policy,and control financial liquidity risks.And with the use of debt-to-equity swaps,reduce the interest-bearing debt ratio of capital operation,implementing the central enterprises'leverage policy,and control financial liquidity risk.Finally,the comprehensive management of liquidity risk and operating performance indicators will be realized.This paper reveals the inherent matching relationship between the financing structure with high leverage,high interest-free debt ratio and the heavy asset allocation with low liquidity and low profitability,and supplements the existing light asset allocation finance.At the same time,from the perspective of liquidity risk constraints and management performance appraisal,this paper provides a new mechanism explanation for the financing structure of construction enterprises generally adopting high leverage and interest-free liabilities,establishes a financing structure decision-making idea based on the integrated management of liquidity risk and operating performance indicators,and expands the research perspective of financing structure.The inherent mechanism of the financing structure revealed by it can provide reasonable decision-making ideas for other enterprises to choose the financing structure.It is of great significance for the current central enterprises to de-leverage and adjust the debt structure.Therefore,the study of this case has general and enlightening significance.