Research On Manufacturing Investment Behavior With Soft Budget Constraint

The corporate governance's role of debt financing has been the focus of the company's financial. The key of playing debt management's role is "tight" budget constraints, that is, enterprises must repay the maturity debt. To China's listed companies, the bank loan is a major source of funding to investment. And China's firms's investment decisions and bank lending decisions are well impacted by government. Under this context, does the bank still be able to play its major creditor's oversight function,inhibit the state-owned enterprises's over-investment behavior?In this paper,we will use theoretical analysis and empirical analysis, discuss China's manufacturing enterprises's investments under soft budget constraint.We'll analyze the soft budget constraint on business investment behavior from theoretical. Government directly or indirectly controlling the state enterprise and the bank,corporate's single structure financing and asymmetric information lead to China's soft budget constraints. This reduce debt's governance functions in business investment, and ultimately lead to low efficiency investment and lack innovation.In empirical part, we use SSE A share listed companies of the manufacturing sector as samples. And we use financial data of 2008. According to different debt ratio, we make descriptive statistics of the overall investment in the sample size,the different nature of the scale of investment property, as well as the scale of investment under different control levels. And we get the characteristics of the present China's manufacturing enterprises in investment,such as: When the bank debt ratio is at a certain limit, the enterprise investment scale and liabilities was in the same direction of change; when the bank debt ratio exceed a certain limit, the enterprise investment scale and liabilities was in the inverse change. In order to further study, we introduce a series of variables and establish investment research models to regress analysis. Because of our current's framework of the soft budget constraint, banks had to agree to refinancing for a variety of considerations. State-owned holding enterprises have over-investment. The debt's role is difficult to play. And the local state-owned holding enterprises inclined more than the central holding companies to expand the scale of investment.This paper also introduce measures to harden budget constraints to play debt's role in China, such as the appropriate government to withdraw the direct business activities in the financial field, strengthen banking reform, improving the environment of financial asset management companies, strengthen market restraint mechanism, strengthen information disclosure of listed companies,promoting bond market.