Research On The Impact Of Equity Incentive On Debt Financing Cost

At present,great changes have taken place in the domestic and international environment,and the internal economic growth has been slowing down.At the same time,COVID-19 makes the external economic environment not optimistic.In the new global environment,the economic situation of China’s listed companies is facing drastic changes.To get into use of the great changes,improving the level of corporation operation and management is of great significance.Meanwhile,better corporate governance is of the same importance.Among those mentioned above,the status of equity incentive is gradually rising.It can effectively solve the local Party committee agency problem in corporate governance and affect the debt financing cost of the company.Institutional investors affect corporate decisions,including equity incentive decisions.Meanwhile,there are both common interests and contradictions between debt investors and equity investors.Therefore,institutional investors have an impact on the relationship between equity incentive and debt financing cost.Then,how does the equity incentive policy affect the debt financing cost of enterprises? How do institutional investors play a regulatory role in the impact mechanism of equity incentive on corporate debt financing cost? What are the differences in this impact among companies with different property rights,financing constraints and equity aggregation? What are the different regulatory effects of heterogeneous institutional investors? Taking 23928 effective sample points of 2946 listed companies,we explore equity incentive’s influence on cost of debts.In this paper,the explanatory variable is financial expense/total liabilities at the end of the period.The explanatory variables are divided into qualitative and quantitative,which are equity incentive dummy variable(LIWDUM)and incentive intensity(LIW).The adjustment variables are RESIST and SENSIT.At the same time,three grouping variables including property right nature(SOE),financing constraint(QSA)and ownership concentration(HERF)are added.This paper analyzes the influence of equity incentive on debt cost.Furthermore,by distinguishing the nature of property rights,the degree of financing constraints as well as the degree of equity concentration,this paper explores the differential impact.Then we add the regulatory variable of institutional investors,distinguish their heterogeneity.And then this paper figures out the institutional investors’ regulatory influence.Meanwhile,we explore the differential regulatory role between equity incentive and debt financing cost.This paper establishes five panel regression models for empirical discussion,and then carries out three types of robustness tests: the robustness test of replacement model,the robustness test of adding governance factors,and the robustness test of replacement samples.Finally,we come into two kinds of conclusions.Firstly,the impact of equity incentive on debt financing cost.(1)Equity incentive has a great effect on the debt financing costs,and can significantly reduce the cost;(2)The impact of reducing debt financing cost through equity incentive is more obvious in non-state-owned companies than in state-owned enterprises;(3)Compared with the companies with low financing constraints,the stock incentive has a more significant effect on the reduction of debt financing in the companies with high financing constraints;(4)Compared with high equity concentration companies,equity incentive has a more obvious effect on reducing debt financing costs in companies with low equity concentration.Secondly,the regulatory role of institutional investors.(1)Institutional investors as a whole play a regulatory role in the relationship between equity incentive and debt financing cost.Institutional investors with high shareholding ratio weaken the inhibitory effect of equity incentive on debt financing cost;(2)The weakening regulatory effect of institutional investors with high shareholding ratio in the inhibition of equity incentive on debt financing cost comes from pressure sensitive institutional investors.According to the results,this research puts forward policy suggestions from four dimensions.(1)Listed companies need to formulate scientific incentive schemes.Improving the level of corporate governance is also crucial;(2)Institutional investors should strengthen their own construction and pay attention to the balanced development of heterogeneous institutional investors;(3)Creditors should pay more attention to the relevant information of equity incentive policies of listed companies and enhance their ability to identify risks;(4)The relevant authorities are supposed to put more control on listed companies.Meanwhile,to some extent they can ease the restrictions on institutional investors.