| According to the initial theory towards capital structure, in face of financingselection, a corporation usually tends to using debt. However, some western scholarsfind that actually a lot of corporations prefer to have a low debt ratio which is muchlower than the optimal debt ratio based on their investigation results. That is to say,the so called tax effect of debt doesn’t play well. In our country, it is also found thatcompanies have a low intention to use debt to satisfy their capital needs through theinvestigation based on the data of listed companies. To conclude, some scholars tendto define such phenomenon as financial conservatism.Recently, research towards the phenomenon that many companies’ actualleverages have been deviated from the target capital structure has received more andmore attentions, and the explanations towards such phenomenon are different,scholars have given verified results in the basis of different aspects. In the beginning,the research of financial conservatism was mainly carried out in the respect of thecapital market situations, such as the environment and policies of capital market. Astime goes by, financial theories about behavioral finance had been brought out and inturn had provided a new perspective for financial conservatism. But no matter forwhich aspect, the research about financial conservatism had avoided the factors ofproduct market competition, and paid no attention to the effects that the marketcompetition had done on the financial behavior. In fact, the financial decisions havebeen selected according to a range of different actors, not only confined to capitalmarket, but the companies’ market status and also the industry environment andindustry strategy as well. These factors may play a role on the process of makingfinancial decisions more or less in an explicit or implicit way. Therefore, if we try toexplain the financial conservatism from the perspective of market competition, maygive a more sensible and reasonable explanation, that is to combine the capitalstructure theories and industry theories together, and define the market competitionfactors as the core variables, investigate the connections between the product marketcompetition and finance.In this study we define the product market competition factors as the mainvariables, try to investigate how and in what kind of way that these variables affectthe financial behavior of a company and in what kind of condition the company wouldintend to keep its financial behavior in a kind of conservative way. And theconnections between two variables in this study we try to explain in a combination oftheoretical and methodical ways together.And the conclusion is that the company ifthe company has anticipated that the future environment of product market tends to bemore furious, it would like to keep a low debt ratio at this moment in order to keep a kind of financial flexibility for the future.The negative impact of financial crisis is still widely spreading, and the more andmore complex environment and intensive competition among the corporations havebrought so many pressures on the industry, the complexity and uncertainties areincreasing, and these factors together should push a lot of power on the corporationwhen making financial strategies, and therefore play an effect on the lever of itsleverage and debt ratio. To conclude, when a corporation is making its financialdecision, it must bring the factors of market competition into its process, should notavoid the external product market factors. This study has divided the wide productmarket competition factors into three groups: product market environment, productmarket competition and product market strategy. And try to explain financialconservatism in these three perspectives above. From the view of product marketcompetition, financial conservatism can be explained more sensible and reasonable ina degree and also can offer more meaningful suggestions for corporations that in whatkind of occasion that a conservative capital structure is more preferring. |
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