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Debt to equity theory research and practice of innovation

Author: WangJing¡¡NingXuanXi From: www.yourpaper.net Posted: 2009-01-12 15:54:14 Read:
Abstract: In the analysis of the debt to equity in the major countries of the world as well as the practical situation in China on the basis of actual cases for clues, from a theoretical and practical point of view, a comprehensive demonstration of a reasonable debt to equity, legality and feasibility . Debt to equity, can more effectively promote resource configuration, can promote the harmonious development of the market economy, and deserve the support and guarantee of the legislature and the executive.

Keywords: debt-to-equity; investment; legislation; administrative

Before the reform and opening up, China's enterprises are mainly state-owned enterprises. Basically do not have a clear system of registered capital, the form of contribution is not listed as the focus of enterprise management. After the reform and opening up, the state-owned enterprises, collective enterprises, private enterprises, registered capital system is no legislation. There is only a range of different administrative. The end of 1993, the introduction of the Companies Act greatly encouraged the establishment of the company. In practice, the relevant provisions of the Companies Act quickly tied the establishment and development of the company. Even after the correction, but still can not adapt to the development of the market economy in the Companies Act. Provisions of contribution and its administration became the focus of one of the problems.

1, of the problem

April 14, 2005. China Aviation Industry Corporation approval Beijing Qingyun Aviation Instrument Co., Ltd. plastic branch restructuring program was presented to the Beijing Municipal Administration for Industry and Commerce. Beijing Municipal Administration for Industry and subversive opinions: we received the first as the main qualification to the general corporate legal debt to equity program. Debt to equity as the main qualification for general corporate legal entity that has no legal basis, therefore the program Administration for Industry and inadmissible. Matter led to disputes between the parties.
The thing is this: Beijing Qingyun Hanson as a restructuring of the unit. Its predecessor Qingyun Aviation Instrument Co., Ltd. plastic Branch (hereinafter referred to as plastic Branch) is a branch of the Beijing Qingyun Aviation Instrument Co., Ltd. (hereinafter referred Albatron). Plastic branch 30 years, made an important contribution for the the Albatron company's development. Business carried out on behalf of the plastic branch, analog Company's balance sheet, as of the end of 2004, the assets of 6.33 million yuan, 5.62 million yuan of debt. The first three years of consecutive losses. The obviously plastic branch can not be maintained, the old professional equipment will be more worthless, its decades since the old state-owned enterprise workers also will be responsible for rehousing Albatron company. The Albatron obviously bear the huge economic and political risks.
Reform and restructuring to become the only way out of the plastic branch. The Albatron plastic branch integration, design of products, technology, personnel, assets and liabilities of the company made a component company's corporate restructuring program: the plastic branch restructuring of Beijing Qingyun Hanson.
The Albatron Hanson registered capital of 260 million, the funded the Albatron company net assets of 715,000 yuan 27.5% stake, the general manager on Unite and other business managers and key personnel (natural) 30% stake. Hebei Fei Da Company f not consent the real Company inconvenience disclosed three creditors holding 42.5%. The three creditors funded debt to equity. The problem lies in the debt to equity.
Promulgated in accordance with the 1994, modified in 1999, the provisions of the Company Law of the People's Republic of China, set up a company of contribution may contribute cash, can also be funded in kind, industrial property, non-patent technology, the price of land use rights. " There is no way of debt to equity. Thus, the the plastic branch restructuring program encountered legal obstacles.

Second, the debt to equity theory analysis

There are various ways of corporate finance, from the perspective of the rights of people not using the human angle. The company financing can be divided into equity financing and debt financing. So the formation of equity and debt financing subject.
Equity is a title, can be broken down for the usufruct right of disposal, voting rights, distribution rights and other rights; debt is a claim can be broken down for the compensation rights, distribution rights. Both belong to the contract rights, due to the presence of the right to transfer, so both have credit conventions of ingredients.
In theory, the debt and equity can be transformed into each other. This paper studies the debt to equity. Two, that the claims be transferred directly to equity (referred to as the debt-equity swap) and debt investment from the practice in the form of debt converted to equity. The debt-equity swap is the creditors' investment held by the creditor on the debtor, the formation of the debtor's equity. The identity of the creditor's investors (shareholders), the original creditor disappear. The debt investment creditors held claims of contribution of external (third party) for investment, the formation of the shares of the third person. Creditors identity to investors (shareholders), the third person to become creditors, the original debt still exists.
From the perspective of financial accounting, the debt-to-equity strict regime. Debt-equity swap, the creditor's statements to adjust, reduce debt (such as receivables, other receivables, loans, etc.), to increase the long-term investment: the adjustment of the debtor's statements, debt reduction (such as payables, borrowings and other payables etc.), to increase the paid-up capital, and increase investor. Debt investments, creditors statements adjustment to reduce the debt (such as receivables, other receivables, loans, etc.), to increase the long-term investment: _ a person to increase the paid-up capital, increase investor; debtor's statements unchanged, only the creditor to make changes.
Debt to equity from the perspective of legal norms, strict regime. Debt investment, as long as the creditors and third parties agree without the consent of the debtor, because the debt as an asset class, the owners (the creditors) have the right to dispose of. Debt-equity swap, creditors and debtors need to reach a consensus. In this case, not only the consent of the creditor. And must go through the consent of the debtor. Must be the debtor's consent is not because it is the debtor, but because it is the identity of the third person to accept the investment.
The practical significance of the debt to equity is very significant.
Achieved and the debt-equity swap, the debtor, reduce debt and increase capital to improve the financial environment, improve the financing capacity, improve credit market. Reduce cash outflow, improving cash flow structure. For the creditor when the debtor is unable to pay its debts. Debtor's bankruptcy, bankruptcy can not be optimistic about the possibility of debt collection and recycling ratio, if the debt converted to equity. Can give the debtor first-line vitality, there is development, and to pay dividends may be. When the debtor has good prospects for development, in particular, has a huge profit potential debt-equity swap. At this time the gains will be far greater than the interest of the original convention.
Debt investment is achieved. Creditors, all claims to achieve risk fully transferred to the third person. Stake in the third party to enjoy the benefits of third person allocation. The debtor has no ability to pay, and the third person the good profitability case, the creditor risks get transferred, revenue maximization. And no practical effect on the debtor. Course, may be because of the different creditors, the pressure paid either in time or in the amount will vary. For a third person, an additional investor share of the net assets, improve strength, improve the financing capacity. But there is a risk of the claims can not achieve. Of course, debt funded discount. Third person through discounts and other means to maximize risk-averse, and there is the possibility of windfall.
From a purely theoretical point of view. Some scholars believe that international debt-equity swap is better than other forms of reorganization. The American economist Hart (1998) theory very representative. First, he assumes that large companies as a whole existence is better than the spin-off, while the current liquidation procedures in the United States is more conducive to spin-off because the big companies are sold as a whole, the few who can afford to buy, even if affordable, market competition incomplete will cause the price is unreasonably low, the repayment of such creditors will be affected. So Hart should try to avoid liquidation, it is best to restructure. Secondly, the reality of the United States. Level of corporate debt, creditors, restructuring negotiations difficult, long time, the restructuring program is daunting, so many of the reorganization to maintain the overall enterprise ends up being split liquidated. Therefore, Hart says that must be debt-equity swap to simplify the restructuring program. Hart's theory of debt-equity swap is an idealized technical design.
Whether the debt-equity swap, or other reorganization of the way. In general, debt restructuring will produce a certain degree of corporate governance structure. The debt restructuring of the corporate governance structure is reflected in two aspects. The first is debt restructuring may shareholding structure will change the governance structure, which will inevitably lead to some adjustments in the decision-making and oversight bodies, such as the composition of the Board of Directors to change. Second, the debt restructuring of the capital structure change, ie, the ratio of debt with equity, the type of debt and so changed. This will also have an impact on corporate governance structure. Regardless of changes in shareholding structure or capital structure changes, what the new shareholders and the interests of creditors and behavior-oriented, as well as how it will be reflected in the corporate decision-making, are worth noting. Changes in the shareholding structure of the governance structure is relatively easy to understand the impact of changes in the capital structure of the governance structure is difficult to grasp. In theory, the behavioral tendencies of debt capital and equity capital is not the same, different requirements and monitoring agent. The agency cost theory to explain the relationship between capital structure and governance structure. Jensen and Meckling (M.Jensen and W.Meckling, 1976) classic paper that. Moderate debt ratio can make the distributor the lowest cost, so that the interests of the client to be able to get a better guarantee. Aghion and Bolton (P.Aghion and P.Bohon, 1992) from the angle of the residual rights of control configuration described moderate debt to reduce agency costs and improve the governance structure. The Fama (E.Fama, 1985) that the creditors of expert supervision can reduce the equity people's supervision. Make supervision more effectively in the governance structure of the so-called "Come creditors" (En-list the bondholders). In a groundbreaking essays on debt contracts. Smith and Warner (C.Smith and J.Wamer, 1979) that the protective provisions in the debt contract (Covenants) enterprises and business investment, financing, dividend distribution manager income limit will effectively to protect the interests of creditors and to improve the governance structure.
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