A Study On The Effect Of Financial Control Of The Parent Company On The Excessive Leverage Of The Listed Companies

In 2016,the Central Economic Work Conference clearly points that,deepen the supply side reform,promoting the "three go,one drop,one supplement" policy,to solve the major structural imbalance problem existing in enterprises,especially in the control of total leverage.The data of China' s Academy of Social Sciences shows that,in the end of 2015,China's total debt reached 168 billion yuan,which is 2.5 times of GDP,the debt within non-financial corporate sector is 1.5 times of GDP,while among the debt of non-financial corporate,the debt of the state-owned enterprises accounted for 65%,the asset-liability ratio of central enterprises always beyond 70%,which beyond the "warning line" made by the S AS AC.Thus,the key to solve the current situation of China's high leverage is to reduce the leverage ratio of the state-owned enterprises.The meeting of the 17th National Congress,which encourage the development of large enterprise groups with international competitiveness,since then a number of large state-owned business groups grow up rapidly.However,during the rapid development and expansion of state-owned enterprises,the weakening of financial management is constantly emerging,which makes many large state-owned enterprises collapsed overnight due to insolvency.For example,in 2015,because of a loan default by Tianwei company,which led to the overdue and default of a number of companies within the group,which eventually led to the bankruptcy of the group.The defective of financial management seriously limited the healthy development of business groups,which has aroused strong repercussions in theory and practice,the reform and innovation of the group's financial control has rise the attention of the government,enterprises and scholars.In recent years,financial control in business groups has been developing rapidly in the central business groups.Many kinds of financial control tools have been launched from policy guidance,theoretical research to practical exploration.Most business groups try to achieve the goal of de-leverage by means of financial control tools,and then seek for the fitness,quality,efficiency of enterprises.Therefore,considering the seriousness of the excessive leverage and the availability of data,this dissertation focus on the central enterprises as the research object,from the perspective of parent company's financial control,using the trade-off theory,moderate debt theory,financial distress cost theory and the principal-agent theory,considering the Chinese special institutional background,analyzing the excessive leverage problems in-depth,trying to find out the mechanism of financial control on excessive leverage.The reason why we choose the central enterprises is that the central enterprises take an important position in China's economy,which occupy 43%of China's commercial activities and 85%of state bank loans.The excessive leverage of central enterprises will make great harm to China's economy,so it's a pressing economic problem to solve.In addition,the data on the financial control of the parent company is internal data and it's difficult to obtain through public channels.This paper obtain the financial control data through the interview of the chief accountant of the parent company of the central enterprise group.However,due to limited time and capabilities,the data of financial control of non-central enterprises group can not be obtained.Based on the above analysis,this study aims to enrich the understanding of the factors affecting excessive leverage and empirically analyze the effect of the financial control of the parent company on excessive leverage,and then test the possible division effect of different financial control methods in the process of excessive leverage.management.At the same time,from the perspective of excessive debt,we find out the key factors that affect the effect of the financial control of the parent company,and try to provide suggestions for the effective design of the financial control.Through reading and analysing related domestic and foreign research systematic,and using the method of normative research and empirical analysis,using the central listed enterprises as the research object,using the data of year 2011-2015,based on the financial control framework that was proposed by Otley and Merchant(1990),this paper construct the financial control system which consists of personnel control,process control and outcome control,analyzing the influence of financial conrtrol over excessive leverage.The main results we get from this study contains three points:(1)The personnel control which represented by the delegation of chief financial officer plays a significant governance effect on the excessive long-term leverage and excessive short-term leverage of the listed companies,but the premise of the governance effect is to appropriately design the incentive system related to the appointment of the chief financial officer.The empirical results show that the single CFO appointment system can not reduce the excessive leverage of listed companies,only when the compensation of the appointed CFO belonging to the parent company,can significantly reduce the excessive leverage of listed companies,further analysis finds that after considering the listed company's own characteristics,the governance effect is mainly reflected in the poor profitability and low growth enterprises.(2)The process control which consists of centralized capital control and centralized information control shows that the centralized capital control can reduce the excessive leverage of the listed companies significantly,specifically,with the increase of the concentration of funds,both excessive long-term leverage and excessive short-term leverage decreased significantly.Considering the characteristics of the listed companies,it finds that the effect of the centralized control of capital on excessive leverage is mainly reflected in enterprises with poor profitability and low growth.Using the information of whether the business group has built the Financial Shared Service Center(FSSC)as a proxy for centralized information control,the results show that the establishment of FSSC can not reduce the excessive leverage of the listed companies.(3)The results control which consists of comprehensive budget management and performance evaluation control shows that when the comprehensive budget management was dominated by the board of directors,or when the compilation method of comprehensive budget is combination of the parent and subsidiary company,the implementation of the comprehensive budget management can significantly reduce the excessive long-term leverage and excessive short-term leverage.Considering the characteristics of the listed companies,it finds that the effect of comprehensive budget management on excessive leverage is mainly reflected in enterprises with weak profitability.However,the different governance effect in different growth companies is not significant.As for the results of performance evaluation control,the higher the proportion of EVA in the performance evaluation system of the parent company,the lower excessive leverage of the subsidiary company is.In addition,compared with ROE indicator,EVA indicator reduce the excessive leverage significantly,but ROE has not play any governance effect on over leverage.The contributions and possible innovations of this paper are mainly the following four points:(1)This paper has filled the existing blank of the empirical research on the financial control of the parent companyThrough field interview,we get the first-hand information about the financial control of the central company's parent company,and using the hand collect data,this paper has filled the existing blank of the empirical research on the financial control.(2)This paper has enriched the research on excessive leverageMost domestic and foreign literature study the influencing factors and economic consequences of capital structure from the perspective of asset liability ratio,but few studies have pay attention to excessive leverage.Compared with the asset liability ratio,the excess leverage ratio takes into account the difference of debt bearing capacity of different enterprises,and it can judge the appropriate of capital structure more reasonably.Different from excessive long term leverage,excessive short-term leverage takes more risk to the enterprise,excessive short-term leverage is more likely to endanger the survival and development of enterprises.Therefore,considering the excessive long-term leverage and excessive short-term leverage will make this research more abundant.(3)The research has expanded the perspective of the influencing factors of excessive leverageMost of the existing researches focus on influencing factors of excessive leverage from the perspective of corporate governance,internal control,property rights and external macroeconomic environment.Few studies have aware that financial control may also has some effect on excessive leverage.It's the reason that the data of financial control methods is internal data,which can not be obtained through public channels,which increases the difficulty of empirical research.This article is the early study on the relationship between financial control and excessive leverage.(4)This paper has enriched the research on the economic consequences of financial control method of the parent companyResearch on the economic consequences of financial control of parent company are rare,most scholars use alternative variable to present the financial control,such as shareholding ratio,or just study from one aspect of the financial control method to study the effect of financial control.By questionnaire survey and collecting data manually,this paper gets a more direct substitution variable of parent company's financial control method,and systematically study the influence of parent company's financial control method on excessive leverage.It makes up for the problem of financial control indicators are not representative and the research perspective is single with existing research on financial control.