Research On The Effects Of Financial Reform On Debt Governance

Any enterprise can not develop without external financial support. In order to attract external investment, enterprises have to design a series of mechanisms to protect external investor's cash safety. Corporate governance is often considered as a system arrangement which can protect external investor, and recover investment. As major external capital supporter of enterprises like shareholders, Creditors provide fund for enterprises, which also needed a set of the security mechanism, the debt governance.Nowadays, there are two different point of views on the debt governance. One is based on the agency theory and incomplete contracting theory, thinking that debt can play the governance role, which can be reducted to "Control Hypothesis" and " Contingent Governance" The other is based on the empirical research, thinking that in some countries, especially in transition countries and emerging economies, because of the incomplete financial environment and legal system (including china before financial reform in 2004), the debt can not play the governance role, but even be the appropriate of major shareholders and insiders, showing the characteristic of "facility appropriate". Institutional environment is the root reason of the differences between above two views. If the banking system environment changed, such as to proceed with the financial reform, to improve legal system to protect the benefit of debtees, can it affect the debt governance and promote the debt governance play an role in it? China launched a new round of financial reform in 2004. Different from all the previous reforms, in this time it touched on some deep fields of financial management system and mechanism. After several years, the shareholding reform of commercial state banks has almost been finished, the problems of sub-owned shares in capital market have been solved, the legal system to protect the benefit of debtees has been improved. It is said that the current reform has fundamentally changed the internal environment of banking system. The new round of financial reform provides a good opportunity for the research on the effect of banking system environment on debt governance.With the background of financial reform in 2004, in order to study the institutional environment's influence on debt governance, and whether the improved financial system can promote debt governance to play its role, by using the sample data of the financial reform, the article empirically checks out the effects of "Control Hypothesis" and " Contingent Governance" before and after the reform, and make a comparative analysis. The main conclusions are as followed:Firstly, the improvement of internal banking system promotes the debt governance to play its role. The major performance is that the effects of'Control Hypothesis" were strengthened remarkably and the " Contingent Governance"could play its role to an certain extent after financial reform.Secondly, different institutional environment leads to different models of action of debt governance. Internal debt governance can play its role better in reducing agency costs and enhancing the enterprise values in high-growth businesses than in low-growth businesses whenever before financial reform or after it, which are different from external research conclusion.Thirdly, different debt contracts show different governance effects. The conclusion of this article's empirical research shows that the effects of "Control Hypothesis" and " Contingent Governance" in short-term debt governance are stronger than in long-term debt governance in our country, this probably because the internal enterprises and debtees all prefer to the short-term debt financing.Finally, after financial reform, there are still some factors which restrict the debt governance to play its role. One is the government's administrative intervention, so-called "fatherly effects", that is to protect the low-growth businesses or the enterprises whose performance is significantly declined, and then prevent debt governance playing its role in reducing agency costs and enhancing enterprises values, especially in playing its role in " Contingent Governance" in enterprises whose performance is significantly declined. The other is that nowadays law of commercial banks in our country do not allow commercial banks who are also the major debtees of enterprises to hold equities, and there are still some restrictions to the workers of banks who are also the members of the board of the directors. All of these directly affects " Contingent Governance"play its role.