Research On Soft Budget Constrain And Debt Lever Governance From Control Right Benefits

Recently years, with the development of capital structure theory, more and more scholars advocate the standpoint that Debt financing can raise the hard budget constraint effectively and optimize capital structure and promote the rise of management efficiency. As a financing instrument, governance mechanism imbedded in Debt financing increasingly should be enjoyed due attention. However the key point for the governance mechanism is the hard budget constraint, that is to say firms who have loans must pay principal and interests on time. Soft Budget Constraint (SBC) which means central planner must commit to save the companies who had been caught in financial constraint, including events such as subsidizing deficit enterprises continually, prolonging the deadline of bad loan and even refinancing, has been the common case of transition economy, not to say China. SBC will undermine the governance role of debt. In China, the maximum block of optimizing capital structure is SBC. The hard budget constraint is indispensable to optimize capital structure and to maintain the positive running of the macroscopic economy. According to the point that SBC is in relation to state-controlled companies, the paper revealed that Control Right Benefits (CRB) is not a negligible reason for SBC, that is to say huge CRB cause excessive investment behavior of managers, then arouse SBC and weaken the debt lever governance role. Meanwhile I did some comparisons between companies with different property rights and different control levels. After that I did some empirical test using the approach of descriptive analysis and regressive testing, with the data from Chinese listed companies in 2006, to testify my fundamental proposition: CRB is not a negligible reason for SBC. At the same time, I found that the debt governance role of state-controlled companies is better than that of non state- controlled companies and the local state-controlled companies have the more powerful debt constrain in comparison with central state-controlled companies. Finally, The paper also supplied some relative suggestions in connection with Chinese practical condition based on research above, such as Increasing the cost of seizing CRB,Being compatible with encouragement,Tolerating partial opportunism intentionally and Perfecting the manager market , then made a conclusion.