Study On The Effects Of Local Officials' Alteration On Enterprise Financial Flexibility

Financial flexibility refers to the enterprise capability to obtain and adjust financial resources in the face of uncertainty in the future to avoid the financial distress or miss development opportunities,this concept stems from capital structure,although it already exists,the initial research is mostly based on the assumption that capital market is perfect,under this assumption the enterprise value has nothing to do with capital structure,that is to say in order to meet the needs of its capital enterprise can change capital structure without any cost,the enterprise owns perfect elasticity,so for a long time,problems about financial flexibility haven't attracted the attentions of the academic circle.In 2008 the global financial crisis broke out,highly uncertain macro-environment highlighted the importance of financial flexibility which has the ability to cope with the financial crisis and seize the investment opportunities.Financial flexibility in essence embodies the ability of enterprise to meet future cash needs,as market environment becomes more complex,financial flexibility plays a more and more vital role in guaranteeing enterprise's lasting and healthy development,so it has become a study hotspot by scholars at home and abroad in recent years.China's political and economic system mode " political centralization and economic decentralization" is highly distinctive,and the evaluation of local officials,achievements by the central government is based on the relative performance evaluation mechanism in a "promotion tournament" form,therefore local officials own the power to make various economic policy within their jurisdictions and been highly motivated to develop local economy,which has a seriously influence on the enterprise operational environments.Because of individual heterogeneity,different officials have different political preferences,so officials'alteration adds significantly to the uncertainty of regional institutional environment.North and Thomas(1973)point out that macro institute environments significantly influence micro-enterprise behaviors,facing the changing of institutional environment enterprises need appropriate levels of financial flexibility.Therefore,this paper studies the effects of the uncertainty triggered by local officials' alteration on enterprise financial flexibility.After reviewing the literatures at home and abroad about officials'alteration and financial flexibility,based on the theoretical analysis of neo-institutional economic theory,uncertainty theory and financial flexibility theory,this paper establishes the research assumptions and uses the data from 2009 to 2016 of China's prefecture-level city(including 4 municipalities)party secretaries' alternation and mainboard companies,then discusses the effects of local officials' alteration and its mode on enterprise financial flexibility.Study finds that:(1)local officials' alteration significantly increases the level of enterprise financial flexibility;(2)Compared with internal promotion,the officials' alteration in an external transfer mode has a greater effect on enterprise financial flexibility;(3)the effects of local officials' alteration are bigger for non-state enterprises than for state-owned enterprises.From the perspective of officials' alteration,a political event,this paper studies the problem of financial flexibility,the results broaden the research fields of effect factors of financial flexibility and are essential supplements of existing studies on officials' alteration and enterprise behaviors,which will help governments and enterprises to understand the effects of government actions on enterprise decisions and provide advice and suggestions for enterprise managers when making decisions about financial flexibility.