Conservative Behavior Based On The Product Market Competition, Corporate Finance Research

In the environment of global market competition, the uncertainty of competitive environment, which Chinese enterprises are confronted with, has been greatly increased. The investors pay more attention to the investment's long-term value and security. With the changes of the environment and the values of investors, enterprise managers tend to take the flexible financial behaviors in order to obtain the strategic flexibility. In such a realistic environment, financial conservatism emerges as the times require. It can reserve financial flexibility for the companies, cope with the uncertainties of market competition, and capture investment opportunities in the future. At present, domestic studies of financial conservatism are still in the initial stage, and the majority of scholars analyze the relationship between market competition and capital structure from the view of competitive degree. They pay little attention to the competitive environment and strategy. Based on the previous studies on the theory, this thesis analyses the relationship between product market competition and financial conservatism from three aspects: the condition, the strategies and the degree of product market competition.First of all, the thesis elaborates the definition of financial conservatism and two views on the relationship between product market competition and the size of debt. Then the thesis analyzes the advantages and disadvantages of the financial conservatism, and the value of the financial flexibility. Secondly, based on the description and analysis of the actualities of the Chinese product market competition and financing, the thesis makes a theoretical analysis of the impacts on the financial conservatism from three aspects: the condition, the strategies and the degree of competition. Thirdly, employing LOGIT nonlinear regression model and the data of Chinese listed companies from 2004 to 2006, we make an empirical analysis in this thesis. To a certain extent, the results show that Chinese listed companies' financial behaviors don't match to the degree and the condition of products competition, and then analyzes the reasons of this phenomenon. Finally, based on above analysis, this thesis gives several pieces of advice, which are about how to make a reasonably financial decision, to the listed companies in China while facing the competition in the product markets.