The Influence Of Bankruptcy Cost On Debt Ratio And Overinvestment Of Chinese Listed Company

The bankruptcy cost is the actual cost and opportunity cost incurred by an enterprise due to bankruptcy or reorganization after the company is trapped in a financial distress.According to the financial theory,due to the threat of bankruptcy,the enterprise will reduce the debt ratio and prudent investment.After the company is in a financial dilemma,the more serious the economic consequences it bears,more stronger the threat of financial distress costs to the company.However,in China's capital market,does the market mechanism also play a role?Will the financing investment behavior of listed companies also be affected by the bankruptcy cost? This paper tries to use the method of empirical test to examine the effect of bankruptcy cost on the debt ratio and overinvestment of listed companies in China.This article discusses the impact of bankruptcy costs on the corporate debt ratio decisions and excessive investment of Chinese listed company.Firstly,the financial theory is analyzed,the influence of bankruptcy cost on capital structure and investment efficiency is deduced,and hypothesis propositions are proposed.Then,using the data of 2012-2016 for all A-share manufacturing listed companies in Shanghai Stock Market and Shenzhen Stock Market as research samples,descriptive statistics,correlation tests,and multiple linear regression methods were used for empirical testing.The empirical test results are:(1)The direct bankruptcy costs are negatively correlated with the debt ratio;(2)the indirect bankruptcy cost is negatively correlated with the debt ratio;(3)the direct bankruptcy cost is positively related to excessive investment;(4)indirect bankruptcy costs are negatively related to excessive investment.The conclusions are made by using theoretical deduction and empirical test: in the capital market of China,the bankruptcy costs have an important influence on the capital structure decision-making and over-investment of companies.The existence of bankruptcy costs will enable companies to reduce debt ratio,and can inhibit excessive investment,which is consistent with the financial theory.Companies should pay attention to the influence of bankruptcy costs,improve the internal governance mechanisms,and set up supervision and control mechanisms.At the same time,they must formulate business strategies and expand the scale more carefully.