Research On Motivation And Economic Consequence Of Zero Finacial Leverage Of Hengrui Pharmaceutical Co

In recent years,in the course of our country’s economic development,the phenomenon of zero financial leverage is more and more common in the capital market,especially in the pharmaceutical industry.Classical capital structure theory,such as the trade-off theory,thinks that moderate debt helps to increase the value of a company,but zero leverage is contrary to it.In this paper,we choose Hengrui Pharmaceutical,a representative enterprise in the pharmaceutical industry,as the research object,through case analysis,to explore the motivation and related economic consequences of Hengrui Pharmaceutical’s choice of zero financial leverage.In terms of motivation,firstly,Hengrui pharmaceutical has excellent debt-paying ability,and there is no major debt-paying ability defect,which eliminates the passive motive of financing constraint.At the same time,Hengrui pharmaceutical has abundant cash flow,and the company has some idle funds,through the internal financing can meet the company’s financing needs,to support the company’s daily operating needs,is the initiative to choose zero financial leverage;Due to the increase of financial flexibility due to adequate internal financing and the use of flexible cash reserves,the low debt-to-asset ratio shows that the company has little or no debt-to-asset financing,low financial leverage ratio,fully retain the company’s future debt financing capacity,thus completing the acquisition of debt financing flexibility,so Hengrui pharmaceutical choice of zero financial leverage has financial flexibility;Third,equity concentration and management’s risk preference,Hengrui Medicine’s equity concentration,the company’s management belongs to the risk-averse type,has the defense motive of avoiding debt financing,make Hengrui medical initiative to choose not to raise funds through debt.In terms of economic consequences,we first used the long-term event study method to compare the data of comparable company Fosun Pharmaceuticals as the benchmark return rate with the monthly return rate of Hengrui Pharmaceuticals,the results show that zero financial leverage has a positive correlation with the stock price of Hengrui pharmaceutical,which is helpful to improve the company’s stock price;Then from the perspective of total cost of capital and efficiency of capital use to explore the impact of zero financial leverage on the company’s investment and operating activities,found that zero financial leverage has improved the Weighted average cost of capital of Hengrui pharmaceutical,at the same time,the economic value added of enterprises is low,the enterprise value is damaged and the investment efficiency is low,and the capital efficiency is not high.Therefore,Hengrui should pay attention to the improvement of the corporate governance structure,adopt the way of optimizing the equity structure to ease the conflicts between shareholders,and at the same time,pay proper attention to the risk preference of management to improve the efficiency of capital utilization,break through the bottleneck of revenue growth to ensure that the company can fully enjoy the positive effect of zero financial leverage;other enterprises in the same industry should assess their own financial characteristics,in the risk-averse and reasonable balance between debt,choose the best capital structure.