Research On The Capital Structure Of Local Government Financing Platform Companies

The Local Government Funding Vehicle(LGFV)is produced and developed under the background of Chinese unique political and financial system and the characteristics of the economic development with in the economic organization form of enterprises.Its essential function is to help local government financing,in addition with to allocate local government funds,to manage project and construction of local government and to manage and maintain State-owned property.The management goal of LGFV is not engaged in a particular industry,but to play the function of financing in the identity of the enterprise.It is necessary for LGFV to establish modes of enterprise operation,that is to establish a business model of sustainable management,to create a certain income and profit generating capacity and cash balance ability,and to ensure certain scale of assets and net assets.Under these operation modes,LGFV shows the overall financial characteristics,such as large debt scale,poor profitability and large net cash flow gap in operation activities.LGFV also has certain capital structure,and shows its own capital structure characteristics because of its special functions,and it is influenced by different factors in three aspects: the ownership of the holder,the property of the creditor's right and the factors of LGFV itself.Among these factors,the shareholders' characteristics,regional economic and finance,credit evaluation of creditor's and debt paying ability have significant influence on LGFV's capital structure,although influence by scale factors are also significant,but the degree is limited.The asset structure,debt structure and profitability index have no significant influence on the capital structure.As the shareholders or the actual controller of LGFV,the local government will generally give various support measures to LGFV,including the recognition of the construction and land transfer income,the government subsidy income,the money injection and the land,real estat,state ownership and other types of physical injection.Among these support measures,the construction income,the financial subsidy income,the money injection and other types of capital injection have no significant influence on the capital structure.The land transfer income and the state-owned equity injection can significantly reduce the capital structure,and the land or real estat injections raise the capital structure of LGFV significantly.Considering the risk control of government debt,regulator gives LGFV strongly supervising restraint.The current general supervision trend is that the function of government financing should be peeled off and LGFV should be the main body of the state-owned assets management and the independent debt servicing subject of the risk.Policy regulation has an impact on the capital structure of LGFV from three aspects: equity asset providers,creditor capital providers and LGFV itself.Under the influence of regulation policies,most LGFVs are promoting transformation and development.The general direction of the transformation is to work on the items which are suitable for the government to provide,can produce a certain cash flow and have a certain monopoly nature.Specifically the transformation include two directions: asset management and management services.The transformation of LGFV will also affect the capital structure from three aspects of the equity asset provider,the creditor fund provider and LGFV itself.