Motivation And Effect Evaluation Of The Selection Of Zero-leverage Business Strategy Of Enterprises

In recent years,there have been a number of zero-leverage companies in various industries in China that give up any debt.This capital structure,which contradicts the traditional capital structure theory,has become the focus of current scholars.In order to solve the mystery of the zero-leverage phenomenon,the extreme business strategy of enterprises choosing zero-leverage is analyzed from three aspects: motivation,path and effect.Correspondingly,conclusions are drawn.Zero-leverage business strategy refers to a strategy in which an enterprise chooses not to borrow foreign debt,but only to invest and operate through its own capital.This zeroleverage business strategy is financially manifested as short-term borrowing,long-term borrowing,non-current liabilities maturing within one year and bonds payable with zero or approximately zero.This thesis selects Heng Rui Pharmaceutical as a case company with remarkable results and typical representatives of the implementation of zero-leverage business strategy.Firstly,the thesis starts from the collection and collation of domestic and foreign research literature based on zero-leverage business strategy,and then this thesis analyzes the relevant theoretical foundations,including trade-off theory,optimal capital theory and financing priority theory.Furthermore,this thesis lists the motivations and paths for the selection of zero-leverage business strategies,and evaluates the effects of implementing zero-leverage business strategies.On this basis,this thesis provides a case study of the specific overview of Heng Rui Pharmaceutical.This thesis consists of six main chapters.The main purpose of the first chapter is to introduce the topic,organize the literature,and sort out the basic framework of this thesis.Chapter 2 summarizes the relevant theories,expounds the main contents of the zero-leverage business strategy,the motivation and path to choose the zero-leverage business strategy.Subsequently,this thesis reviews the basic theories covered in it.Chapter 3 introduces the basic situation of Heng Rui Pharmaceutical and the setting of its zero-leverage business strategy.Chapter 4 analyzes the motivation and path of Heng Rui Pharmaceutical’s zero-leverage business strategy.In terms of motivation,the first is to maintain financial flexibility and promote the ability of enterprises to resist risks.Heng Rui Pharmaceutical’s zero-leverage business strategy has flexible cash and debt financing,so that Heng Rui Pharmaceutical can respond to uncertain opportunities and risks in the outside world at any time.Therefore,it rationally allocates funds and makes full use of funds.Second,Heng Rui Pharmaceutical stabilizes the control of the enterprise and maintains the risk control preference of the management.Thirdly,Heng Rui Pharmaceutical’s innovative products are fast,so the innovative products can return funds at a faster speed and generate innovative products with sufficient cash flow.Therefore,Heng Rui Pharmaceutical can actively choose zero-leverage business strategies.In terms of path,Heng Rui Pharmaceutical has achieved product innovation and enhanced corporate value through continuous increase in R&D investment.Moreover,Heng Rui Pharmaceutical reduce financial risk through proper and effective money management.In addition,Heng Rui Pharmaceutical uses a prudent dividend distribution policy to provide protection for the company’s reinvestment growth value.These measures provide the foundation and way for Heng Rui Pharmaceutical to actively choose the zero-leverage business strategy.Chapter 5 is the evaluation of effects.The zero-leverage strategy in this thesis will promote the increase of corporate financial flexibility,have a positive effect on the company’s innovation output,and stabilize the control of controlling shareholders.This thesis draws the following conclusions from the analysis of the motivation,path and effect of Heng Rui Pharmaceutical’s active choice of zero-leverage business strategy.Above all,financial flexibility,R&D innovation and management’s risk control preference are the key factors for enterprises to actively choose a zero-leverage business strategy.Secondly,Heng Rui Pharmaceutical has laid the foundation for realizing the zero-leverage business strategy through a virtuous cycle of cash flow.Lastly,the implementation of zero-leverage business strategies has a significant positive impact on profitability,investment ability and innovation ability.Although Heng Rui Pharmaceutical’s implementation of zero-leverage business strategy has brought positive effects,it is still necessary to put forward the following suggestions to other enterprises: First,on the eve of choosing a zero-leverage business strategy,enterprises need to analyze their own capital structure,weigh the company’s operation and financial characteristics.Thus,the company would choose the capital structure suitable for the company.Secondly,companies need to consider overall financial flexibility,rather than doing whatever it takes to achieve it.Finally,while a zero-leverage company stabilizes the control of the controlling shareholder to prevent the control from being transferred,it should also pay attention to the hollowing out behavior of the controlling shareholder.It is indispensable for enterprises to improve their governance structure,and they cannot allow controlling shareholders to dig tunnels and encroach on the interests of minority shareholders.At the same time,when implementing a zero-leverage business strategy,enterprises need to pay due attention to the risk appetite of the management,so as to ensure that the company obtains the positive effects brought by the zero-leverage business strategy.