The Governance Effect Of Debt Financing In Real Estate Enterprises

The influence of debt financing on corporate decision-making has always been one of the main issues in the study of capital structure theory and corporate governance theory.The existing findings follow two different research paths:one is to assume that corporate decision-making aims at maximizing corporate value while taking corporate debt financing as one of the important financial constraints,and then analyze corporate market competition behavior;Second,it is assumed that the will,psychology and action criteria of managers affect corporate decision-making,and it is regarded as one of the corporate governance issues.Further analysis is helpful to reduce agency costs and improve the governance mechanism of scientific decision-making of enterprises.When analyzing the governance effect of debt financing,existing studies focus on the analysis of mergers and acquisitions,violations,management compensation contracts and other issues.There has not been enough study made combining the analysis of economic consequences of corporate governance with market competition,product pricing and other market behaviors.For real estate enterprises,debt financing is one of the most important governance factors.With the development of Chinese economy and the continuous transformation of industrial structure,the instability caused by the high debt of real estate enterprises has become one of the important financial risky factors.In order to prevent systemic financial risks and ensure the healthy development of the real estate market,China has adopted a variety of policy measures.In 2021,the "three red lines" regulation policy directly imposed control on the debt of real estate enterprises.This policy further highlights the importance of the leverage governance effect of real estate enterprises.This makes it of great practical significance to re-examine the leverage governance effect of debt financing of real estate enterprises.A rolling development structure in "land-housing sales-reinvestment" of our real estate enterprises has been formed by the "Three high" model.In this mode,the core content of real estate enterprise market decision concentrates in the land auction,house sale and reinvestment.The land bidding decision,sales pricing decision and investment decision of real estate enterprises constitute not only the decisive factors for real estate enterprises to achieve rapid development in the changeable market environment,but also one of the key contents of corporate governance related research of real estate enterprises.Therefore,the study on the governance effect of debt financing on the land bidding decision,sales pricing decision and investment decision of real estate enterprises can not only add new application scenarios for the leverage governance mechanism in the Chinese context and specific industries,but also help realize the deeper expansion of corporate governance research to the decision-making level of the product market.To this end,this paper focuses on the real estate industry,a specific industry.Combining with the particularity of real estate enterprises’market behavior,this paper comprehensively investigates the leverage governance effect of debt financing on real estate enterprises from three most important market decisions of real estate enterprises,namely,land auction decision-making rationality,pricing decision-making rationality and investment decision-making rationality.At the same time,from the two aspects of manager characteristics and enterprise characteristics,combined with the manager defense hypothesis and budget soft constraint theory,the paper investigates the conditions and circumstances under which the leverage governance mechanism plays a role.Firstly,based on the different influence mechanisms of leverage governance,this paper constructs the theoretical analysis framework of debt financing and market decision-making of real estate enterprises.On the one hand,it demonstrates the theoretical mechanism of the influence of debt financing on the decision-making rationality of land auction,house sales pricing and investment.And from three governance mechanisms of the debt financing leverage governance of "free cash flow","control camera transfer" and"signal transmission",this paper demonstrates that debt financing may influence the rational decision-making of the enterprise market through the above-mentioned three governance paths.On the other hand,combined with the management defense hypothesis and the budget soft constraint theory of state-owned enterprises,with the analysis of the characteristics of managers and enterprise characteristics,this paper investigates the moderating effects of managers’management defense motivation and property right attribute on the leverage governance effect of real estate enterprises.Secondly,combined with the particularity of the real estate enterprises’ market behavior,this paper makes an empirical test of the real estate enterprises’ land bidding decision,sales pricing decision and investment decision respectively,and demonstrates the governance effect of debt financing on the real estate enterprises’ market decision.In the part of the empirical test of land auction,this paper takes the land auction premium as a reflection of the impact on the agent cost of managers,and tests the influence of debt financing on land auction decisions.The empirical results show that debt financing has a significant governance effect on the rationality of land auction decision-making of real estate enterprises.The increase of debt reduces significantly the irrational premium and improves the rationality in land auction of real estate enterprises.Management defense and property right attribute play a significant moderating effect on the leverage governance effect of debt financing on land auction decision-making.When managers’ defensive motivation is strong,the governance effect of debt financing is weakened.However,in state-owned enterprises,soft budget constraints will distort the leverage governance mechanism of debt financing,leading to the opposite conclusion from private enterprises,namely,the higher the debt ratio,the higher the premium for state-owned property companies in land auctions.These results can still hold even after replacing the debt financing measure,controlling house price expectations,and dealing with endogeneity.At the same time,the conclusion of the difference model for the external governance effect of policy confirms that the implementation of the "three red lines"policy does have an external governance effect by imposing control on the debt of real estate enterprises and guiding the land auction of these enterprises from the external market.In part of the empirical study of sales pricing decision,based on the "smooth market"adjustment of the average price of real estate sold by real estate enterprises,this paper indirectly measures the impact of the agent cost in the sales pricing decision of real estate enterprises,and on this basis,tests the impact of debt financing on the sales pricing decision of real estate enterprises.The empirical results show that debt financing also has a significant leverage governance effect on real estate enterprises’local sales pricing decisions,and the rise of debt enhances the degree of adaptation between real estate enterprises’sales pricing and market price changes.At the same time,the management defense and property right attribute still play a significant moderating effect on the leverage governance of debt financing and sales pricing decisions of real estate enterprises.The conclusions mentioned above passes the robustness tests of replacement index and control endogeneity.The test of the external governance effect of the "Three Red Lines"policy also finds that this policy can have an impact on the sales pricing decisions of real estate enterprises through external governance,which is reflected in the obvious improvement of the sales pricing adjustment ability of real estate enterprises after the implementation of the policy.In part of the empirical study of investment decision,this paper takes overinvestment as the characteristic index of managers’ influence on the investment decision of enterprises,and tests the governance effect of debt financing on the investment decision of real estate enterprises.The empirical results show that the increase of debt financing will significantly increase the overinvestment of real estate enterprises,indicating that the governance effect of debt financing on overinvestment is distorted,which is different from the conclusion that debt financing has governance effect on land auction and sales pricing decisions of real estate enterprises.In the case of strong management defense of managers and state-owned enterprises,the positive effect of debt financing on overinvestment of real estate enterprises is further strengthened.The robustness test supports this conclusion.In view of the "Three Red Line" policy,the study of this paper shows that the effect of external management of "Three Red Line" policy exerts governance effect on over-investment of real estate enterprises.When the failure of the internal governance effect of debt financing occurs,external governance effect of policy will become an important alternative mechanism,forming inhibit excessive investment in real estate enterprises.The innovation of this paper is mainly reflected in the following four point:First,under the theoretical analysis framework of leverage governance and market decision-making of real estate enterprises,leverage governance is further expanded from the study of capital markets such as mergers and acquisitions and investment to product markets such as competition and pricing.This paper systematically analyzes various mechanisms of leverage governance,and studies the comprehensive impact of debt financing on market decision-making of real estate enterprises.Second,on the basis of management defense hypothesis and budget soft constraint theory,this paper systematically describes the characteristics of managers and enterprises,clarifies the conditions and situations in which different governance mechanisms of leverage governance play a role,and further explores the boundary of effective leverage governance.Third,taking real estate enterprises as research samples,combined with the particularity of real estate enterprise governance,this paper studies the impact of debt financing on the special market decisions of real estate enterprises.Fourthly,this paper studies the interaction of external governance factors on internal leverage governance mechanism,and systematically studies the external governance effects of regulation policies on enterprises’market decisions based on the dual analysis framework of"government and enterprise".