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Equity constraints, debt constraints, market constraints

Author: Wu Song From: www.yourpaper.net Posted: 2007-11-21 01:38:41 Read:
Abstract: equity constraints, debt constraints, market constraints and three constraints have their own characteristics. Constraint mechanism of listed companies in China is not perfect performance: equity constraints imbalance, debt constraint soften, market constraints fatigue. A variety of measures should be taken to adjust the shareholding structure constraint mechanism to improve the listed companies.

Keywords: equity; claims; market; constraints

The constraint mechanism of listed companies is a set of controls designed for the company or the managers, supervision system, the purpose is to prevent or alleviate the damage of opportunistic behavior of the operators of the interests of shareholders, creditors and other governance stakeholders. Three constraints mechanism: constraints of equity, debt constraints and market constraints in the system of governance of listed companies. Constraint mechanism of listed companies in China is not perfect performance: equity constraints imbalance, debt constraint soften, market constraints fatigue. In this paper, a comparative analysis of the restraint mechanisms of these three features as on policy recommendations, and constraint mechanism of China's listed companies. (A) equity constraints equity constraint is a concern starting from self-interest in the company ownership and management separation conditions, the shareholders of the company managers implemented the necessary controls and checks and balances, and its purpose is to ensure that the company operators behavior consistent objective of maximizing shareholder value. Equity constraints to stock investors based on the ultimate ownership of the company has reflected the exercise of shareholders' rights by investors, there are mainly two: First, hand vote, operators, investment, finance, personnel, distribution motion to vote or veto; Second, are voting with their feet, to sell stock to just walk away, the takeover of the capital market to put pressure on the operators. In theory, equity constraints on the operators a more direct threat greater constraints, major decisions and operations by hiring powers are vested in the hands of the shareholders, the shareholders' meeting, board of directors, board of supervisors can play on managers monitoring role. From the governance practices of listed companies, equity constraints and a greater flexibility constraints. Shareholders of the company have a residual claim, but the company has no legal obligation to distribute dividends, thus the equity constraints on the company in the financial result of the pressure is not too great. The intensity and effectiveness of the size depends on the following three factors: (1) Equity degree of centralized or decentralized. Equity and the higher the concentration, the formation of the controlling shareholder, the stronger constraint efforts. This is because the large shareholders more, the loss of the stock dispersion to reduce the risks and benefits of liquidity, so the need to strengthen supervision and control compensation. In contrast, the more dispersed shareholding, corresponding weakening of minority shareholders generally free rider psychological leaving equity binding. information about the degree of symmetry between the owners and operators of distribution. Symmetrical distribution of the information is not only conducive to the shareholders of things or after the operators to carry out the evaluation, supervision and control of the dynamic, but also help to improve the completeness of the principal-agent contract between the prior owners and operators. But modern separation of ownership, the owners are often in information vulnerable side, thus weakening the effectiveness of the constraints of the equity. (3) the nature of the shareholders. Individual shareholders and institutional investors, shareholder equity real set of native shareholders, state-owned shareholders equity dummy derived shareholders, corporate shareholders is caused by the complex effect derived shareholders equity. The different shareholder profitability, dominant investment selection order and the pursuit of different levels, and thus the equity constraints intensity also vary. Equity constraints from our situation, listed companies generally softening weak state, but there is also the problem of abuse of a controlling stake in the controlling shareholder. (1) State-owned shares also contributed to the ultimate absence of owner equity divided by different government agencies, equity constraints weaken, resulting in larger companies in the proportion of state-owned shares, the internal control is serious (Ho Chun, 1998); countries administrative way to exercise the powers of the shareholders, the formation of alternative administrative constraints on equity constraints. (2) individual shareholders too scattered, difficult to form a joint force of the company's constraints, the prevalence of negative behavior vote with their feet. (3) corporate shareholders, mostly state-owned parent holding company of the listed company, its own "internal control" exists under the equity soft constraints, coupled with the restructuring is not complete, the parent holding company and listed companies in terms of human, financial, material and other association, even "two brands, a Sagittarius, thus parent holding company in the case of" internal control "problems of abuse of a controlling stake in a listed company. (B) the the debt constraints creditor constraint is in company liabilities to operating conditions, the creditors to protect their own interests, the company applied to influence or pressure. The relative equity constraints, the creditor constraint has the following characteristics: creditors in the normal case is generally not involved in the internal corporate governance, rather just have the right to obtain a copy of maturing debt principal and interest, the debt constraint mainly as a financial constraint. debt constraints have legal force, that under the conditions of the company does not take the initiative to debt service, the creditor may resort to legal means to force the debtor to perform. (3) under the premise of company insolvency, corporate governance dominance by the shareholder to the creditor, the fate of the company will face bankruptcy liquidation or reorganization of assets, operators will also be "laid off". Therefore, from the managers point of view, debt constraints than equity constraint hardware much more can more effectively play the role of supervision and restraint operators. First, the company regularly debt interest expense will be reduced by the free flow of funds manager used to enjoy their personal self-interest, to weaken its inefficient investment of choice, in turn, can inhibit the excessive investment behavior of the manager. In other words, the debt as a guarantee and commitment mechanism, can promote managers and more hard work and less personal enjoyment, and make better investment decisions, reduce agency costs due to the separation of ownership and control. Second, due to the existence of the threat of bankruptcy, poor operating conditions of enterprises dare backs excessive debt burden, therefore, the level of the debt ratio, can pass the business situation is good or bad information to the outside world, it is conducive to correct stakeholders evaluation of enterprises and enterprise operators to form a more effective management oversight mechanisms. Finally, the claims prompted the business owner is more concerned about the economic efficiency of enterprises, more power to oversee the operation of the enterprise. More business risk under the equity owners of the enterprise because of the existence of the bankruptcy mechanism, if an enterprise operating efficiency poor into bankruptcy proceedings, the assets of the enterprise on the first used to offset the corporate debt, the biggest loss will be the shareholders of the enterprise. Therefore, the effect of debt constraints and equity constraints complementary. Debt constraints intensity and number of the company's liabilities, the degree of concentration of the creditors and the creditors nature, identity, and other factors. Corporate liabilities The higher the ratio, the higher the concentration of creditors, or the higher the degree of marketization of creditors, the greater the intensity of debt constraints; Conversely, if the creditors of the company is more dispersed, less debt amount, or the creditor and the debtor in the definition of property rights, the division of assets compare fuzzy, then debt constraints efforts will be weak. Theoretically harder claims constraints in China, want to make a lot of discounts to reality. First, because of the softening of equity constraints, the listed company biased in favor of equity financing, low debt ratio, the debt ratio of the number of the company's difficult to achieve effective constraint. Listed companies are mostly state-owned enterprises, mainly from state-owned banks and the debt of listed companies, there is no fundamental conflict of interest between them, there was no mutual constraints between the seriousness of the creditor-debtor relationship between them very easily destroyed, it is difficult to form a real strict creditor-debtor relationship, but only a virtual creditor-debtor relationship, which can not be played constraint operators behavior, thus enhancing the role of enterprise efficiency. Feel less than the ultimate threat of bankruptcy from bankruptcy liquidation system of listed companies in China has not really set up the company, which greatly weakened the intensity of constraint by the creditor company. (C) market constrained market The constraint is through the stock market, manager of market and product market competition pressure, through the survival of the fittest of market mechanisms to achieve the constraints of the company's managers. First of all, the competition in the product market directly determine the operating results of listed companies, and the results of operations of direct work effort reflects the operators and the fundamental basis of the shareholders payment the operators of wages, bonuses, stock options and other compensation; operating results The quality of further determine the value of human capital manager market managers, their income, prestige, status, and even threats to their career as a professional manager. Especially in the fully competitive capital market, the company control over fierce competition. Poor management of the company, effective decline, shareholder vote result fell with their feet, will greatly increase the company was the risk of hostile takeovers, means that managers take over a major reorganization. Whether the receiver last actually occurred, as long as there is such a threat exists, the operators will feel the pressure and hard work. So, the battle for control of the capital market or the hostile takeover is considered to be an important weapon to guard against the risk of operators agent to promote its efforts to work. The effectiveness of the constraints of the market depends on the integrity of the market itself, competition, and the authenticity of the market information. A full flow of information, and a highly competitive, complete system market to give business to a strong constraint; contrary, when the distortion of market information, inadequate competition, artificial segmentation system, the effectiveness of market constraints will be greatly reduced. From our point of view, due to the continuous progress of market-oriented reforms, the development of the market is maturing and standardizing the market constraints of the managers of listed companies is significantly enhanced, but the presence of the following factors affect full play to the role: a prominent listed companies financial fraud, dubious about the authenticity of the results of operations, the operators of the true level of hard work by carrying performance is difficult to observe. Is too speculative stock market, the departure from the stock price and operating results of the Company, it is difficult to correctly reflect the level of the value of the company. The third is a legal person shares of the total share capital of the two-thirds of the state shares are not traded, the acquisition of the takeover mechanism exists in name only. Fourth, a considerable part of the management personnel of the listed companies is still in the hands of the selection and appointment of Party and government departments, the manager of the competitive market is difficult to establish. Because of the above reasons, the market constraints force managers of listed companies in China is not strong, especially in the stock market constraints, basically in a weak state. To sum up, China's listed companies operating constraint mechanism equity constraints, debt constraints, market constraints, the overall in softening fatigue state. This led to the corporate governance of listed companies in the increasingly serious internal control problems. Internal control not only harm the interests of equity investors, it also undermines the interests of the creditors of the company and other governance stakeholders. Therefore, establish and improve the Listed Company constraint mechanism to improve the governance of listed companies in China. 1, the optimization of the equity constraints. The first is to improve the equity structure of listed companies. A reasonable shareholding structure of the Company should not only avoid excessive fragmentation of equity options and avoid excessive concentration. Equity spread too thin, free-rider prevailed the equity constraints easily lead to the weakening of triggering "internal control" damage the interests of all shareholders in the case; equity overly concentrated to form a the absolute holding company of a shareholder, caused "due to the dominance of" abuse of a controlling stake in the problem under the conditions, not only the interests of minority shareholders were damaged and difficult to guarantee the independence of the company's own. Therefore, the relative concentration or holding on the basis of equity relative dispersion is the optimal choice of the company's shareholding structure. China's current situation, equity over-centralized and over-dispersed coexist: on the one hand, the degree of diversification of property rights is not enough, the state-owned shares (including state-owned shares and state-owned legal person shares) the proportion is too large, on the other hand, the public shareholders too dispersed, the lack of the strength of institutional ownership and equity investors with strategic vision. Therefore, to improve the equity structure and equity constraints, the formation of both the relatively dispersed and relatively concentrated shareholding structure, the key lies in the reduction of the proportion of state-owned shares, while the introduction of strategic investors with strong equity control consciousness, the state-owned shares and the development of institutional investors strategic investors combine. I think this is to improve the equity structure in China, and strengthen the most important move in the equity constraints. Secondly, the view of the board of directors both decision-making and oversight bodies, and therefore there is a need to strengthen the authority of the Board of Directors, give full play to the important role of the board of directors in the equity constraints. The internal construction of the Board should establish an Executive Committee, the audit committee, remuneration committee and nomination committee, the Budget Committee, and other types of permanent functional organization truly the supervision constraints duties of the Board of Directors of the managers in place; personnel composition of the Board, should be limited to operators which constitute the introduction of a system of independent directors, non-executive directors play an important role of a conflict of interest between the owners and operators of large shareholders and minority shareholders coordination, balance. 2, hardening debt constraints. First, to establish and improve the system and regulations for listed companies in bankruptcy liquidation or reorganization, the poor management of the deteriorating financial position of the enterprise to have after the hard punishment mechanism to work hard to promote prior operators. Secondly, in order to accelerate the commercialization of the banking system reform, improve their internal management systems (such as loans accountability system), its and liabilities listed companies establish strict creditor-debtor relationship; especially state-owned banks, in the reform of property rights greater efforts in the state holding the premise, the introduction of private capital, demutualization transformation, tough constraint mechanism itself establish property rights, avoid excessive control internal problems. The only way to make the state-owned banks to become truly has the power and the interests of market players, in order to establish a true market trading relationship and liabilities of the enterprise, but also have the power of the liabilities of the business activities of the implementation of the camera control. Third, the establishment of strong debt service guarantee mechanism, transfer of assets or a business by false business contracts, guarantees, loans, related party transactions, debt evasion behavior creditor parties (corporate managers or affiliates) property claims and legal investigated. Fourth heavy equity financing for the current listed companies, light debt financing, should strengthen the equity constraints and regulatory authorities at the same time to raise equity financing threshold, modest increases in the amount of debt financing of the company, in order to enhance the efforts of debt constraints on operators. 3, strengthen market discipline. In China, in addition to a small number of monopoly industries, competition in product markets has been quite intense, operators generally feel a lot of pressure; standardize the market competition order, prevent vicious competition and unfair competition. Manager of market cultivation, the key is to change the current practice of the appointment of the chairman and general manager of state-owned listed companies investigated by the Party and government departments, the implementation of the system of hiring from the market operators. A lot of problems of the capital market, the operators listed companies is bound, less. My opinion, mainly to solve three problems: First, the state-owned shares tradable. This is the only issue is resolved, the company's battle for control of the acquisition of the takeover mechanism really up market operation, the foregoing have elaborated as to how to solve the problem of state-owned shares. Excessive market speculation inhibition. To solve this problem in addition to strengthen law enforcement supervision, the key is to improve the quality of listed companies to enhance the overall market value of investments. Third, the authenticity and integrity of the market information. Information is the fundamental basis of the shareholders, creditors and other stakeholders in the evaluation of companies operating conditions, to determine the investment value of the company; disclosure of information as a mandatory obligation, an important means to restrain the company operators. To further improve the relevant parties to the understanding of the importance of information disclosure, strengthen the inspection of law enforcement information the disclosure obligations of listed companies to fulfill, illegal acts and those who are responsible should be severely punished.
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