A Study On The Phenomenon Of Asset Value Less Than Issued Debt In China's Listed Companies

The capital market in China is a new one in the process of economy transition. The development level of market economy system results in the great difference of legal and credit mechanism between our country and foreign countries, which lead to the result that the financial practice of the listed companies in China betrays many unique merits. Capital market competition is a process which follows the survival of the fittest. As the main body of capital market, the listed company's quality decides the overall condition of capital market. In the intense competition, the demise of listed companies is unavoidable, having the bankruptcy and going private are the important measures to guarantee healthy development of capital market. If massive ST companies and companies whose asset value is less than issued debt for a long time flood the stock market, the optimized disposition of resources will be seriously influenced. Theoretical and practical fields pay more attention to ST companies as well as loss-making companies, but the systematic study on the phenomenon of asset value less than issued debt in China's listed companies is limited.The capital market takes the credit mechanism as the foundation. When the company is unable to pay debts with their assets for a long time, their credit will be exhausted, the company will be eliminated from the capital market, which is advantageous to the enhancement of capital market's quality and healthy economic development. However, There are massive this kind of companies in our capital market, they have negative influence on the capital market's efficiency of resource disposition and harm the benefit of small investors. So we have to ask that does the phenomenon stem from investor's non-rationality or system's non-rationality? Why are the listed companies unable to pay debts with their assets? Why can the listed companies in China whose asset value is less than issued debt continue to exist in the stock market? Under the condition of the disequilibrium in the market systems' development level, how to avoid the financial distress that companies can't pay debts with assets effectively? How can the law mechanism, supervisory mechanism, credit mechanism in the capital market be coordinated? Study on these questions has practical significance and academic value.Centering on the above questions, this paper is presented with the following chapters:The first chapter deliberately explains the research background, theoretical and practical significance, research methods, framework, main idea and the major points of originality. In addition, the concepts of financial distress, financial crisis, and asset value less than issued debt are thoroughly elaborated and clearly clarified to avoid unnecessary argument, make readers grasp what the paper discuss rapidly.The second chapter contains the literature review. The paper presents a systematic reorganization of the existing related research points, and according to the main idea, divides them into two parts, domestic studies and overseas studies. The overseas studies base on the relatively perfect capital market, produce many research results on the prediction of financial distress, reasons, the relationship between the financial distress and the performance etc. The majorities of domestic studies use the overseas techniques and models to make some confirmation study of listed companies in China, but neglects their adaptable market background, which produce the different results comparing to the overseas studies. This paper firstly makes a brief comment on the existing studies, indicates the difference between this paper and theirs, highlights this paper's academic and practical value.The third chapter contains the characteristic analysis of listed companies whose asset value is less than issued debt. The paper introduces the sample choice method, data source, indexes' definition and measurement, and by collecting the materials, uses regression and matching methods to provide the empirical data for realizing the capital structure and common conduct characteristic of these particular companies deeply. Comparing with the matching companies, companies whose asset value is less than issued debt for a long time betrays that main business isn't prominent, competitive and management abilities are weak, fund embezzlement is serious. Funds occupancy ratio, non-debt tax shields, intangible assets ratio have strong explanation to the capital structure of listed companies whose asset value is less than issued debt.The fourth chapter contains the case study of Qionghuaqiao. The paper uses the deep case study to support the empirical study, and by organizing the related data, makes a comprehensive analysis of the case company's financial situation, discloses reasons that Qionghuaqiao is unable to pay debts with their assets and specific manifestation. Study indicates that over debt is the active debt, asset value less than issued debt is the passive debt, the former is financial radical behavior, the later stems from the decrease of asset. Non-rationality investment consists in blind diversification without considering the prerequisite of disequilibrium in the market systems' development level, which lead to the result that the leading industry isn't prominent, the product competitive ability is insufficient, and lack of scientific decision program, which result in overinvestment and low fund utilization rate. Tunneling activities of large shareholder intensify the company's financial aggravation, through improper guarantee, related-party transactions, large shareholder embezzle the listed companies' fund and harm the benefit of small investors.The fifth chapter contains the reasons why can the companies whose asset value is less than issued debt exist in the capital market for a long time. Considering the system background in China, the paper analyzes the listed company's particular shell resources value and credit in capital market, uses the theory of implicit contracts to probe into the implicit financial crisis, expands the accounting equation, explains the concept of asset value less than issued debt anew, and combining the mutual transfer among enterprise credit, market credit and nation credit, studies the reasons why can the companies whose asset value is less than issued debt exist in the capital market for a long time and lift orbit, analyses influence governmental interference and law mechanism produce. The result of capital market's system design is the shell resource which is the basis of long-term existence for companies whose asset value is less than issued debt. Depending on the shell resource, listed companies can change the accounting equation; increase the resource basis for recombination. The deficiency of capital market's credit mechanism is the market element for long-term existence of companies whose asset value is less than issued debt. The deficiency of credit mechanism makes the companies whose asset value is less than issued debt receives little deserved market punishment. Out of the consideration of performance and social questions, government give relief to the companies whose asset value is less than issued debt through government subsidy and credit transfer. Company's recombination is the important mean for the long-term existence of companies whose asset value is less than issued debt. Companies can require relatively abundant time to improve their operation through recombination of asset or debt which can provide the chance for profit surplus management to avoid the legal sanctions.The sixth chapter contains how to avoid the phenomenon of asset value less than issued debt. The solution of this question is not only actual problem for the companies' development needs, but also the needs of resource optimized disposition in the capital market. Based on the above analysis, the paper presents the suggestions from legal system construction, credit mechanism construction, market structure system construction and companies' governance mechanism construction.The last part concludes the whole paper, summarizes the basic conclusions and points out the limitation of this study as well as the direction of future research.