Research On The Economic Consequences Of Corporate Deleveraging From The Perspective Of Internal Stakeholders

In recent years,the continuous improvement of the leverage ratio of China’s nonfinancial enterprise sector has become an obstacle to high-quality economic development.On the one hand,high leverage will aggravate the fluctuation of asset prices,reduce resource allocation efficiency and increase the risk of overcapacity.Then it will increase the vulnerability of the financial system,and possibly lead to debt and financial crisis;On the other hand,the continuous increase of leverage ratio will inhibit corporate investment,impact the development of the real economy and increase the vulnerability of the real economy.Therefore,in order to achieve "steady economic growth",it is the top priority of China’s deleveraging to effectively resolve debt risks,prevent systemic financial risks,and actively and steadily reduce the leverage ratio of non-financial enterprises.At the end of 2015,the Central Economic Work Conference put forward five key tasks of "de-capacity,de-inventory,de-leverage,cost reduction,and short board compensation",and China officially entered the process of "de-leverage".After three consecutive years of economic work conferences,the importance of deleveraging has been emphasized,and enterprise deleveraging has become an important part of China’s economic work.Under the macro background of "steady economic growth" and "deleveraging" policy of non-financial enterprise departments,this paper systematically discusses the economic consequences of enterprise deleveraging from the perspective of internal stakeholders,which has important theoretical and practical significance.Stakeholder theory holds that an enterprise is essentially composed of all stakeholders,which should not only pursue the maximization of shareholder value but also create wealth and value for all stakeholders.The business goal of an enterprise should be to maximize the overall interests by coordinating the interests of different stakeholders.Especially with the advent of the scientific and technological revolution and the era of the knowledge economy,the scarcity of material capital in many fields is decreasing,and the importance of the active participation of stakeholders in the successful operation of enterprises is rising rapidly.Then,the conflict of interests of stakeholders is constantly breaking out,and if it can’t be solved well,it will eventually harm the overall interests of the company.Correctly handling and coordinating the interesting relationship among stakeholders has become one of the basic prerequisites for enterprises to successfully carry out business activities.According to the resource dependence theory,the scarcity of resources possessed by groups or individuals determines their importance to the survival and development of enterprises.Therefore,enterprises should pay more attention to and meet the interest requirements of stakeholders who have mastered the essential resources needed by enterprises.Internal stakeholders hold the Human and physical capital,which are the essential factors of production for enterprises.Only by ensuring the maximization and sustainable development of their interests can the interests of other stakeholders with enterprises as the carrier be realized.At the same time,internal stakeholders can influence organizational decisions by participating in the collective choice of enterprises and can realize and share the common interests and goals of enterprises,which is reflected in the business value of enterprises.However,external stakeholders often can’t participate in the collective choice of enterprises,but they will be affected by the externality of enterprise management,which is reflected in the social value of enterprises.This paper studies the economic consequences of enterprise deleveraging,which should be more reflected in the business value of enterprises.Therefore,this paper chooses to explore from the perspective of internal stakeholders.This paper synthesizes the research of Harrison and Freeman(1999),Weizheng Chen(2002),Honghui Chen and Shenghua Jia(2004,2005),and Zhuquan Wang(2008),we choose the shareholders,common employees,and managers who can participate in decision-making and provide capital and human resources for enterprise development as the main research objects of this paper.Specifically,this paper takes China’s non-financial listed companies from 2007 to 2020 as the research sample.Firstly,based on the shareholders’perspective,this paper studies the internal relationship and mechanism between corporate deleveraging and stock price volatility.Then,based on the manager’s perspective,this paper explores the influence of corporate deleveraging on executive compensation performance sensitivity and its mechanism.Finally,based on the perspective of common employees,this paper explores the internal relationship and mechanism between enterprise deleveraging and labor income share.Through relevant research,the following conclusions are drawn:First,from the perspective of shareholders,we find that:(1)Enterprise deleveraging is significantly negatively correlated with stock price volatility,which indicates that enterprise deleveraging is beneficial to reducing the volatility of listed companies’ capital market share price,giving full play to the role of market resource allocation and promoting the healthy development of capital market.(2)The mechanism research found that the enterprise’s deleveraging mainly reduces the enterprise’s risk by alleviating the problem of insufficient investment caused by the debt suspension effect,rather than the credit risk path.(3)Further research shows that the deleveraging of state-owned enterprises and non-state-owned enterprises can significantly reduce the risk of enterprises,and there is a significant risk reduction effect in large-scale companies and low-growth companies,which indicates that enterprises should adhere to structural deleveraging;At the same time,deleveraging is conducive to increasing the future capital investment and innovative investment level of enterprises,improving investors’ profit expectations and further supporting the debt overhang theory.Secondly,based on the manager’s perspective,we find that:(1)corporate deleveraging is positively correlated with the sensitivity of executive compensation performance,which indicates that corporate deleveraging improves the degree of interest consistency between shareholders and managers,and shareholders strengthen salary incentives when designing contracts of pay.(2)The mechanism research found that corporate deleveraging mainly improved the sensitivity of executive compensation performance by reducing the supervisory role of creditors,alleviating the debt suspension effect,and reducing the risk of default.(3)Further research shows that corporate deleveraging reduces the agency cost,excess pay,and on-the-job consumption level of managers,and at the same time improves the efficiency of capital allocation,which indicates that corporate deleveraging improves the sensitivity of executive compensation performance,and has a governance effect on executives.Thirdly,based on the perspective of common employees,we find that:(1)Enterprise deleveraging has a significant negative correlation with the share of labor income,indicating that enterprise deleveraging reduces the share of labor income,and employees with labor,knowledge,technology and other factors of production cannot obtain their due economic value according to their true contribution.(2)Further research found that the enterprise’s deleveraging behavior reduced the share of labor income by reducing employees’ salaries and increasing labor productivity.(3)Corporate deleveraging has not reduced employee employment but has improved labor productivity by promoting capital deepening and technological innovation.The innovation and research significance of this paper are mainly reflected in the following aspects:First,the innovation of research perspective.This paper is the first in China to systematically explore the economic consequences of micro-enterprise deleveraging based on the perspective of internal stakeholders.There has been literature on the economic consequences of corporate deleveraging from a micro perspective,but most of them are from the perspective of maximizing shareholder value.Unlike the existing studies,this article systematically examines the economic consequences of corporate deleveraging from the perspective of the overall interest balance of internal stakeholders,which provides theoretical support for accurately evaluating the economic significance of corporate deleveraging.Under the background of the conflict of interests among stakeholders,enterprises should divert from the traditional management concept of "the supremacy of shareholders’ interests" to the development concept of balancing the interests of stakeholders in their business decision-making.Secondly,this paper takes the largest developing country in the world as the scene for the first time,verifies and expands the applicable scope of the Myers’(1977)debt overhang theory.We find that enterprise deleveraging reduces stock price volatility by alleviating the debt overhang effect,improves the consistency of the interests of managers and shareholders,and improves labor productivity and total factor productivity by promoting scientific and technological innovation.These findings are consistent with Myers’(1977)debt overhang theory.Thirdly,this paper enriches the research scope of firm risk.Existing literature has explored stock market risk management from the perspective of corporate governance and business decision-making.Based on the debt overhang theory,this paper explores the influence of enterprise deleveraging on stock price volatility and the mechanism of transmission,which is an expansion and supplement to the related literature on enterprise risk management.Fourthly,this paper is a valuable supplement to the research on senior management and enterprise income distribution.Existing studies mostly focus on corporate governance or institutional environment.Based on the new perspective of corporate financial leverage change,this paper explores the critical influence of corporate deleveraging on executives’pay for performance sensitivity and labor income share,which provides a new research perspective for exploring corporate governance issues and income distribution.