The Effect Of Debt Financing Structure On Corporate Governance In China's Listed Companies

Capital structure is the base of corporate governance, and the debt financing is one of the most important parts of the capital structure.So the debt financing proves to play a significant role in corporate governance and performance.Since the MM theory was made by Franco Modigliani and Merton Howard Miller in 1958, there have been a mature theoretical system about capital structure and the financial researchers has always been seeking for the relationship between the financial structure and corporate value. For example, the agency cost theory, the pecking order theory, the theory of signal transfer and the theory of control-rights shift. That theoretical system has not only impelled the research in capital structure and corporate governance, but also proved great effects about debt financing on agency problem and corporate governance. The important role of debt financing is recognized by more and more researchers and corporations.Nowadays, the research of capital structure has become more and more remarkable, when our reform of economic structure goes deeper and capital market becomes more mature. However, the quantities of the research on stock financing are much larger than debt financing. And most of the research on debt financing is focus on macro analysis, lacking of micro analysis and experience research. There maybe two reasons for that status quo:1.The construction of bond market is slower than stock market in China, so the corporations prefer stock financing to debt financing.2.Many people don't really realize the important role of debt financing in corporate governance. So the research on debt financing is impending and realistic in China.We can classify the researches of debt financing in china into two aspects:l,Macro analysis.2,Researching with the mainstream of economics. But there are many deficiencies in them, such as the research methods, the research models and the research areas. Especially when analyzing the relationship between the structure of debt financing and corporate governance or performance, they always consider the debt to be homogeneous and static. However, different structure of debt financing and different seedtime, the effect on corporate governance or performance is different. So this paper selects study on effect of debt financing on corporate governance in Chinese listed companies as its topic, which shows both theoretical and practical value in China.This paper firstly introduces the related theories of corporate governance and debt financing, based on financing theory of western company systemically analyses the effects of corporate governance of debt financing from two aspects: the motivation and the restriction to operators and restriction and control to shareholders, and finds that debt financing plays a positive role in corporate governance. Then this paper analyses influencing factors of governance effects of debt financing of Chinese listed companies in concrete economic environment in our country. Based on the theory analysis, this paper selects the listed companies in Shenzhen and Shanghai stock exchange from 2004 to 2006 as the research sample . By having regression analysis between corporate performance and debt situation, draws the following conclusions: (1) As a whole, debt financing does not constitute a large part of company financing, leaving some space to go ; (2) Due to unreasonable debt structure, currently adopted methods in debt financing doesn't help up with corporate governance.