The Study On The Governance Effect Of Chinese Listed Company Debt Financing

Research indicates that debt is not only a financing instrument, but has powerful governance roles which can improve the value of company, and promote it's governance. However, China still has many factors that hinder the governance effect of debt work effectively. Firstly, China is gradually improving the market economy system, and the development of capital markets has also made great progress, but we still lag far behind the developed countries. Secondly, the overall capital structure of Chinese enterprises is irrational, and it does not make endogenous and exogenous resources into effective integration, especially does not take full advantage of the positive governance effect of debt financing. Thirdly, domestic scholars started relatively late to do study on the governance effect of debt financing, and enterprises do not make in-depth understanding to the governance effect of debt financing, which, to some extent, limit the governance effect of debt financing better used in Chinese listed company. This paper attempts to do empirical study on the governance effect of debt financing and its influence factors, and makes some suggestions and improvement measures for Chinese listed companies on how to strengthen the governance effect of debt financing.Firstly, this paper reviews the theory of governance effect of debt financing. It points out that the debt financing has finance governance effect, agency cost-effectiveness, signal transfer effect, control effect and bankruptcy cost-effectiveness. Meanwhile, it looks back on the empirical literature finding that debt has powerful company governance roles, but the scholars do not reach a consensus on the empirical study conclusion of same issue, research methods need to be improved. Secondly, it analyzes the current situation that Chinese listed companies use the governance effect of debt financing through comparative analysis of data and studying on the current situation of policies and regulations finding that Chinese listed companies'average debt in year of 2005-2008 is 52%, which has great increase compared to the past few years. But it is still low comparing with the developed countries whose average level is 70% or more, so this shows that Chinese listed companies do not well use the governance effect of debt financing. And then, take some Chinese A-share listed companies as samples, make two steps, principal component analysis and regression analysis, to do empirical analysis, and get the below conclusions. 1. Free cash flow and debt ratio is negative correlation. 2. Current ratio and debt ratio is negative correlation. 3. Company scale and debt ratio is negative correlation. 4. Company growth and debt ratio is positive correlation. 5. Asset-liability ratio and company governance effectiveness is positive correlation. 6. Senior executive shareholders have no significant effect on financial leverage. 7. Industry factors have no significant effect on financial leverage. Finally, this paper puts forward some suggestions of Chinese listed companies take full advantage of the governance effect of debt financing.