Mechanism And Empirical Research Of Why Financial Leverage Exacerbates China's Industrial Overcapacity

Overcapacity is the main obstacle in the current economic operation of our country."cut overcapacity" is listed as the first of the five tasks,which was first proposed by the central economic working conference at the end of 2015,"three go one drop and one supplement".The problem of overcapacity in China's industrial industry is particularly serious,and more financial leverage has been accumulated,and financial risks should be prevented while overcapacity is resolved.The research between financial leverage and excess capacity is relatively independent,the purpose of this paper is to explain why the formation of industrial overcapacity in China is accompanied by the high leverage rate by studying the internal mechanism between financial leverage and overcapacity,and proposes a better solution;By combing the theory of the mechanism of overcapacity,considering the impact of excessive industrial overcapacity on the effect of improper intervention by local governments,this paper tries to analyze the influence of financial leverage on excess capacity on the basis of the local government's vicious competition and the theoretical basis of cost externalization.This paper mainly explains the mechanism of how financial leverage deteriorate the impact of overcapacity from two aspects.In the stage of overcapacity's beginning,financial leverage first supports the expansion of the internal costs of enterprises,and then expands the excess capacity through the externalization of costs.In the clear stage of overcapacity,the higher the enterprise leverage ratio is,the greater the possibility of bankruptcy,the more strong will of the local government and the creditor banks maintain their own interests.The overcapacity enterprise can not exit the market which lead to overcapacity.The essence of this is that the financial leverage has hindered the exiting of excess capacity;this paper applies “outdated capacity"of DEA and output oriented CCR model to measure the excess capacity index;simultaneously,generalized method of moments model(GMM)test the impact of financial leverage on China's industrial overcapacity by introducing the panel data of China's35 industries;The empirical results demonstrates that China's industrial overcapacity phenomenon with high leverage of the phenomenon is not an accident,excessive leverage can indeed aggravate the formation of overcapacity.At the same time,excessive leverage has formed an obstacle to dissolving capacity,causing overcapacity to be in debt.The high financial leverage is not only an important promoter of overcapacity,but also an external manifestationof the deterioration of overcapacity.In order to alleviate the financial leverage to exacerbate overcapacity,this paper puts forward relevant policy recommendations from the two aspect of overcapacity's formation and dissolving.,the main policy recommendations include strengthening corporate direct financing,reducing improper government intervention,optimizing credit resource allocation efficiency,improving performance appraisal system,strengthening bank risk monitoring,improving bank performance appraisal standards,and flexibly using mergers and acquisitions.