Research On The Relations Between Types Of Debt And Over-investment Under The Financing Constraints

The theory of financing constraints points out that the exogenous capital cost is higher than the endogenous capital cost because of the imperfect capital market, which makes the companies face financing constraints and affects their investment behaviors. The companies probably remain a lot of free cash flow under the financing constraints in order to keep running. And the management may use these FCF to carry out over-investment. But the investors will enhance their supervision abilities to make the management invest carefully. So, this paper puts forward that the financing constraints can restrain the over-investment.However, the financing constraints restrain the over-investment not by itself but by influencing the debt financing. The bank borrowing and the commercial credit, two main types of debt financing methods, have different debt governance roles. The credit risks as well as the willingness to lend and supervise will be different under different degrees of financing constraints, which leads to the change of contingent governance function. Therefore, this paper researches the differences of debt governance roles between the bank borrowing and the commercial credit under the financing constraints.Because the private listing corporations face higher financing constraints, that this paper chooses them as the object to study the financing constraints is reasoned. This paper selects the private listing corporations in the period of2007to2011as the sample to do empirical analysis. The results show that both the bank borrowing and the commercial credit can restrain the over-investment behavior significantly, and the former has a greater inhibitory action than the latter. It validates the theory of debt governance and provides a good guide that the companies need to consider not only the capital costs but also the benefits from the debt governance role for the companies in choosing debt financing types. What’s more, this paper also inspects the theory of financing constraints, which discover the financing constraints can, in a way, restrain the over-investment significantly. Finally, this paper analyzes the different types of debt can play their different debt governance roles in different degrees of financing constraints. Under the higher degree of financing constraints, the bank borrowing can restrain the over-investment behavior significantly while the commercial credit cannot. But under the lower degree of financing constraints, both the bank borrowing and the commercial credit can restrain the over-investment behavior significantly, but the latter has a greater inhibitory action.The thesis includes seven parts. The first part introduces the background and significance of the research ideas and basic framework, and also illustrates the innovation of the thesis. The second part describes the review of the literature. It summarizes the literatures about the relation between the debt financing and over-investment, financing constraints and over-investment, financing constraints and debt financing. And points out the current situation and shortage of them. The third part mainly presents the relative theories and defines several basic concepts related to the main topic of the dissertation. The fourth, fifth and sixth part are the most important parts of this thesis. They severally empirical analyze the contingent governance function of the types of debt financing, the nexus between the financing constraints and over-investment and otherness of the debt financing types under financing constraints. These parts put forward the hypotheses, present the research model, define the explained variable, explanatory variables and controlled variables and make the regression analysis. The seventh part draws the main conclusion based on the empirical research, state some policy advice, and also points out the deficiencies.Theoretically, this paper enriches the theory of financing constraints by proving the relation between financing constraints and over-investment. This thesis, in practical, provides the better advice for the financing decision of the private listing corporations. This paper analyzes the governance roles of different types of debt by comparing the changes in supervisory role of the creditors under different degrees of financing constraints, which different from the previous literatures.