Empirical Study On The Impact Of Managerial Power On Corporate Financing Behavior

The new institutional economics indicates that the incomplete contract and information asymmetries cause manager's objectives inconsistent with the shareholders', which trigger managers to maximize their profits, resulting in the agency problem between managers and shareholders. According to the agency theory, debt, especially short-term debt, can supervise and control management behaviors effectively, because debt can reduce the free cash flows that managers can use and their self-interest behaviors, so debts can make the agency cost lower(Jensen,l976). Then, the classical agency theory emphasizes the governance effects more often. On the other hand, the control theory of capital structure argues that debts can dominant the distribution of control right between managers and creditors. Managers choose their own financing structure to achieve the most benefits when they face benefits and constraints and liquidation. Based on the theories above, this paper focus on generally institutional background which is the "strong managers, weak owners" phenomenon in China's listed companies and weak investor protect environment, from the perspective of management entrenchment, empirically investigating the relationship between managerial power and financing behavior in our country. Then, we try to find some significant conclusion.Firstly, this thesis reviews the theoretical development of capital structure and debt maturity structure then abstracts theoretical foundation of the managerial power, capital structure and debt maturity. Secondly, build the index which is a proxy for managerial power by using Principal Components Analysis. Apply OLS regression to analyze the empirical relationship between managerial power and financing behavior includes capital structure and debt maturity. It is found that, the higher the concentrated degree of managerial power, the lower leverage is. Further research found that, in the choice of debt financing, the higher the concentrated degree of managerial power, the longer maturity is. Finally, in view of the results above, this paper proposed to strengthen and perfect the corporate governance, improve the legal environment to protect the investors and so no.