Capital Structure, Financial Contracts And Disposal Of Financial Governance Rights

Financial contracts theory of capital structure in western countries has developed from research on the allocation of efficiency of earnings from cash flow based on complete contracts to that on optimum disposal of control right based on incomplete contracts. Nowadays, research on financial governance in China also puts its emphasis on the disposal of financial-rights. But there is no generally accepted definition for "financial-right" and no in-depth study of disposal of financial-rights based on incomplete contract has been carried out yet. Another grave defect of our research is that the realm is too narrow and the methods should be more systematic. To solve these problems, this paper proposed a concept system of financial-rights and a theory system of financial governance.The phenomenon of insider control is an inevitable product of transmission economy and is different to that of market economy. Adopting others' achievements, the author analyzed the capital structure and disposal of financial governance rights in China's listed corporations. The object of deciding capital structure is to make residual rights of financial control match residual claims best. But due to our immature capital market and the phenomenon of insider control, decision makers of capital structure have an extreme favor to share financing, which has been proved by empirical data from listed corporations. Certainly, the deciding capital structure of listed corporations is also affected by the disposition and efficiency of financial governance rights. Empirical research showed that the ratio of assets to liabilities and operating performance are significantly negative. It demonstrated that the function of liability in China's corporation governance is faint.Finally, the paper put forward several suggestions to optimize corporations' capital structure and financial governance, including producing and nurturing institutional investors, enhancing management of investors' relationship, building dynamic model for inside disposal of financial-rights, improving withdrawal and bankruptcy mechanism, and improving system of relevant laws and rules.