The Formation And Prevention Of Enterprise Default

Affected by the long-term global monetary easing environment,the leverage ratio of China’s real economy sector is high,and the concentrated outbreak of default risks has increasingly become a major hidden danger to the stable operation of the macro economy.At the 10 th Meeting of the Central Financial and Economic Commission in2021,General Secretary of the Communist Party of China,Xi Jinping emphasized: "Make overall plans to prevent and defuse major financial risks." Healthy development of the real economy is the basis of financial stability.To properly handle the relationship between steady growth and risk prevention,we need to effectively monitor the sources of debt risks in the real economy on the basis of accurately determining the generation mechanism of corporate default risks,so as to avoid concentrated outbreaks of default risks,and consolidate the micro foundation for the recovery of the real economy.At the same time,a scientific understanding of the general rules of default risk prevention,active measures to cope with and prevent default risk,and a correct grasp of the timing and effectiveness of macro policies are the guarantee and requirements for maintaining the steady operation of the real economy in the stage of high-quality development.In this paper,based on the capital income and expenditure decision of enterprises,starting from the capital income and expenditure equation of representative enterprises,the existence and form of corporate debt boundary are theoretically deduced and empirically discriminated,and the formation mechanism of debt default is demonstrated.From this perspective,the research perspective is expanded to explore the prevention and governance of corporate debt risk under the framework of macro and micro combination.The main contents and conclusions of the study are as follows:Firstly,based on the capital income and expenditure function of enterprises,the boundary of corporate debt is constructed and deduced,the reasonable debt interval of enterprises is clarified,and the status and characteristics of debt default risk are rationally identified.The theoretical research shows that corporates face the default boundary,which satisfies the condition of equalization of capital expenditure,and the debt safety boundary,which satisfies the condition of equalization of marginal capital expenditure.The two boundaries respectively define the minimum rate of return on capital and the optimal rate of return on capital to maximize profit under the conditions of given debt cost and capital structure,and divide the corporate business conditions into three default risk states: debt safety zone,debt stall zone and debt default zone.The enterprises in the debt safe zone have positive capital gains,can accumulate surplus and realize sustainable and sound operation,and the default risk is low.Enterprises in the debt stall area have marginal capital loss and default risk is rising.The capital income of enterprises in the debt default zone has been unable to offset its expenditure under the condition of current debt ratio,facing the default risk.Empirical research using the data of Chinese A-share listed companies from 2001 to 2020 shows that enterprises objectively face A debt default boundary that meets the capital balance.The critical level of return on capital at the boundary is positively correlated with the cost of debt and capital structure,and is more sensitive to the change of the cost of debt.The efficiency gap index constructed on the basis of default boundary has a strong explanation of default risk and can effectively identify default risk.Then,based on the deduction of default boundary,the research further explores the generation of corporate debt default.The self-reinforcing mechanism of the debt stall zone and the principal-agent conflict between different entities within the enterprise are two internal causes of debt default.On the one hand,in the debt stall zone,the marginal return on capital is less than the marginal cost of debt,so the action of increasing borrowing to cover the current loss will bring larger marginal loss,because of the decline of the marginal efficiency of capital and the rise of marginal cost.Blindly borrowing the new to repay the old will eventually drag the enterprise into the debt mire,until they default.On the other hand,the conflicts between corporate managers and shareholders,as well as between shareholders and creditors,are also important causes of corporate default.In addition,macroeconomic shock is the external trigger of default,which includes two main aspects: demand shock and interest rate shock.Demand shock mainly refers to the macroeconomic downward shock when the overall market demand significantly shrinks,such as the impact of COVID-19 epidemic.Interest rate shock mainly refers to the situation that the real interest rate rises,such as the unexpected change of monetary policy and the change of external monetary policy from loose to tight.Empirical research using real market data confirms the theoretical conclusion and provides empirical evidence that internal and external factors drive default.And then,based on the deduction and empirical test of the factors affecting the debt boundary,the paper calculates the current situation of default risk in the Chinese market,and explores the prevention of enterprise default risk based on the debt boundary.The results show that both technological progress and macro regulation are important factors affecting the position of corporate debt boundary.On the one hand,if other conditions remain unchanged,technological progress can effectively reduce the production cost of enterprises,move the debt boundary downward,expand the debt safety zone and reduce the debt default zone.Under the same leverage level,the return on capital required by the default boundary is reduced,which is an effective means to prevent the default risk.On the other hand,loose monetary policy can push the debt boundary downward by reducing the market interest rate,and also expand the debt safety zone and compress the debt default zone,helping enterprises that have fallen into the stall zone and default zone to return to the safety zone,so as to curb the default risk of the real economy.In addition,the results of measuring the current situation of default risk in China’s enterprise sector show that the default risk in China’s market is generally controllable and has a good trend,but the industry distribution is uneven and more susceptible to external economic shocks,which suggests the direction of focusing on the scientific prevention of default risk in the enterprise sector.Finally,following the analysis of the influencing factors of the corporate debt boundary,the paper further discusses the constraints under which the loose monetary policy leads the debt boundary to move down.Theoretical research shows that loose monetary policy is faced with certain constraints in the process of regulating enterprise behavior: On the one hand,if the monetary policy makes the borrowing cost lower than the actual equity financing expenditure,it will induce the speculative financing behavior of enterprises.At that time,monetary policy falls into the "monetary policy trap",and the regulation effect of monetary policy on the financing behavior of enterprises is ineffective.Enterprises are no longer based on the balance of total capital income and expenditure,but only based on the balance of marginal capital income and expenditure,there is a short-term dominant strategy to increase debt,which objectively pushes up the leverage ratio of the real economy and increases the fragility of the economic system.On the other hand,in the real environment of highly developed virtual economy,the excessively loose monetary policy below the interest rate threshold and the extra excess liquidity released will motivate enterprises to use credit funds for financial investment and promote the real economy from real to virtual.At the same time,the "black hole effect" of the capital market,on the one hand,absorbs the excess liquidity of the market,on the other hand,the inflow of capital will also blow up the asset price bubble and increase the rate of return of financial investment.Thus,it will further provide positive incentives for enterprises to increase their debts for financial investment,leading to continuous idling of liquidity in the financial system,which is not conducive to the recovery of the real economy.The empirical study confirms the theoretical conclusion that monetary policy does have certain constraints on corporate financing decisions.When the loose monetary policy guides the debt financing cost lower than the actual equity financing expenditure,it will fall into the "monetary policy trap",the regulatory function of monetary policy fails,and the corporate leverage ratio rises.The constraint on US monetary policy is a0.7% interest rate threshold.When the cost of debt is lower than the threshold,enterprises increase debt,leverage ratio rises,debt risk accumulates,capital is idling in the financial market,capital market is excessively prosperous,and the economy turns from real to virtual.Under the prudent monetary policy,China’s monetary policy has not promoted the deviation from real to virtual,and enterprises have no incentive to increase ineffective liabilities.Credit funds have not significantly flowed into the financial market,and the default risk of the real economy is generally under control.Monetary policy provides an appropriate monetary and financial environment for the steady operation of the economy.Recently,due to the increasing downward pressure and the impact of the COVID-19 pandemic,the risk of corporate default has significantly accumulated.On the basis of identifying the causes and current situation of default risks,taking effective measures to prevent default risks in the real economy is the premise of stabilizing macroeconomic expectations and ensuring high-quality economic development.Based on theoretical deduction and empirical test,this paper has gradually answered a series of theoretical and practical problems closely related to practice,such as the reasonable debt interval of enterprises,the identification of default risk,the generation of default,the trigger of "default tide" in the real economy,the path of default risk prevention,and the constraints of monetary policy.The conclusion will provide useful theoretical basis and data support for shareholders,creditors and market regulators to better supervise the business behavior of enterprises,as well as policy makers to prevent the default risk scientifically,and rationally grasp the timing and effectiveness of economic policies.