A Study On The Impact Of Debt-to-equity And Agency Costs On Corporate Financial Performance

In recent years,China’s economy is under the pressure of "three overlapping periods",and the new round of debt-to-equity transfer,which is transformed from "saving banks" to "saving enterprises",is one of the main ways to reduce leverage and dispose of banks’ non-performing assets.As one of the main ways to reduce leverage and dispose of banks non-performing assets,the new round of debt-to-equity swap reflects the characteristics of marketization and legalization,and the objects of the swap are mostly concentrated in heavy asset industries such as iron and steel,coal and non-ferrous metals,etc.The rapid expansion of production capacity in these industries has led to excessive financing of enterprises,and the industry leverage ratio remains high while there is serious overcapacity and profit decline,and the debt risk problem is prominent.Whether the conversion of debt to equity can achieve the deeper purpose of controlling corporate leverage and improving corporate profitability to achieve sustainable development from reducing over-reliance on bank lending and guiding enterprises to equity financing is a question that needs to be further verified.This paper analyzes the mechanism of debt-to-equity swap affecting financial performance based on combing and summarizing related studies,using trade-off theory,signaling theory and agency cost theory,and introduces agency cost as a mediating variable to analyze the path of debt-to-equity swap affecting financial performance.Taking the enterprises that have announced the implementation of debt-to-equity conversion since the market-based debt-to-equity policy was launched as the research object,the relevant data from 2013 to 2020 are selected to empirically test the relationship between debt-to-equity conversion,agency cost and financial performance through descriptive statistics,parallel trend test and DID regression.Among them,factor analysis is applied to measure the financial performance of enterprises,and double difference method is used to test the impact of the implementation of debt-to-equity policy on the financial performance of enterprises,while the mediating role played by agency cost between debt-to-equity and financial performance is further examined.The following conclusions are drawn from the empirical analysis:(1)the implementation of debt-to-equity swaps has a significant positive effect on the financial performance of firms;(2)the implementation of debt-to-equity swaps has a significant negative effect on the agency costs of firms;(3)agency costs play a partially mediating role between debt-to-equity swaps and financial performance.Finally,from the perspective of individual practice,Nanjing Iron &Steel Co.Ltd is further selected as a case company to analyze in turn the changes in financial performance before and after the implementation of corporate policies,the changes in agency costs,and the specific performance of debt-to-equity conversion through agency costs affecting financial performance in the company,so as to better draw research conclusions.By studying the implementation effect of market-based debt-to-equity conversion,we provide reference on whether creditors can effectively enhance equity value after implementing debt-to-equity conversion to preserve assets;and focus on how to dispose of debts and how to resolve financial risks after debt disposal for enterprises with high debt levels and temporary financial distress,especially for enterprises with cyclical characteristics and overcapacity.The research in this paper shows that the implementation of debt-to-equity swaps has positive significance in supporting the strategic restructuring of the national economy,replenishing the capital of enterprises,reducing their liabilities,helping them optimize their capital structure,alleviating their agency problems,improving their efficiency,and resolving financial risks.