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Agency costs, growth and the performance of listed companies debt

Author: ChengJianWei From: www.yourpaper.net Posted: 2009-03-31 16:11:49 Read:
Abstract: This paper uses a different agency costs and growth indicators divided into different sample interval, leverage and debt maturity structure and profitability of the business relationship test findings, the high concentration of ownership in the state holding degrees and a high proportion of the outstanding shares of these three cases, the disutility of debt is relatively small, positive utility debt maturity structure is not consistent with the relative size.
Keywords: profitability; agency costs; growth; debt

The since the MM theory inception, capital structure theory has become a topic of enduring financial research in the field. Corporate external financing in two ways: equity financing and debt financing. When decided to use debt financing, companies must choose to select the amount of debt while debt deadline, capital structure and debt maturity structure is an unavoidable issue in corporate finance. China has a different institutional background and Western developed countries, China's listed companies have unique behavioral characteristics, and the lag of the legal environment and the lack of creditor protection, and these may have an important impact on the behavior of creditors. In this context, the performance of listed companies in China's debt to earnings or debt financing, how the problem is a matter of great concern. But both empirical test are considered basic in China, debt and corporate earnings are negatively correlated and there is a big difference with Western capital structure theory. In this case, whether the debt has played a due role in governance, it is a negative correlation between a monotonous and profitability, which needs to be deeper.

A literature review

Very rich literature on leverage and debt maturity impact of corporate earnings. Jensen and Meckling (1976) from the system level for the first time to study the mechanism of the liabilities affect the value of the company, that using both equity capital and debt capital exists between managers and shareholders, two typical interests between shareholders and creditors conflict. Liabilities to the strict terms of the contract, the special payment and governance tools ease the shares of the company's conflict of interest and principal-agent conflicts, liabilities and thus affect the value of the company to become the principal-agent conflicts affect the value of the company, the question of meaning. Guo Chunli (2006) further liabilities affect the value of the company's main boils down to six: savings for corporate profits tax payment, tax avoidance; increase the probability of corporate bankruptcy the resulting bankruptcy costs reduce the value of the company; sent to the market signals about the inherent quality of the company, has the effect of information; require periodic payment of certain cash flow constraint managers, the bankruptcy system to managers cause great pressure on the operation, supervision and restraining effect; the leverage magnified managers stake of management have the incentive effects; mergers and acquisitions combined with the proxy contest and hostility, as the company's anti-takeover tool, has control over the effect.
Different maturities of debt also affect the profitability of the enterprise. Strong oversight control mechanisms of short-term liabilities can constrain the behavior of managers and shareholders to invest in risky projects, to reduce the asset substitution effect, reduce agency costs, a favorable impact on the value of the company; Long-term liabilities mainly by means of high interest rates, tax avoidance effect Increase the value of the company. Produce more favorable effects in the framework of the principal-agent analysis and asymmetric information theory analysis framework, the short-term debt to the value of the company.
It is regrettable, however, empirical research, especially profitability and liabilities based on the study of Chinese data often draw a negative conclusion, while relatively few empirical studies of debt maturity structure and profitability for China, the total debt The relationship of the amount of its duration and earnings remains to be further studied.

Second, the study design and the regression results

Ways of debt to enterprise value, the role played by the debt-to-earnings differ with varying degrees of conflict of interest between shareholders and creditors between managers and shareholders, and, depending on the equity agency costs of debt in reducing the role played by the constraint manager. Conflict of interest between managers and shareholders is more important because of the particularity of the Chinese claims. Taking into account the comparability between indicators (Note: panel data including a different year, the growth targets will be subject to the economic cycle, and many other factors, according to the level of growth indicators grouped mixed regression will generate growth regression deviation of growth should be measured by Tobin's Q, the impact of cyclical changes in the stock market is more intense, taken in cross-section data can largely avoid the problem.), here only in 2004, the Shanghai Stock Exchange and Shenzhen Stock Exchange All listed companies as samples, the company boss out missing data, and finally get a valid sample of 1258, according to the median of the different indicators, we will divide it into two groups, the natural logarithm of total assets (lnc) as the control variable, The dependent variable rate of return on assets. Inspection at the same time, we also consider the maturity structure of debt indicators come in, asset-liability ratio and debt maturity regression as independent variables.
The regression model:
ROA = C a1 * lev a2 * mat a3 * lnc
Which, ROA is return on assets, C is the constant term, lev, said the asset-liability ratio, mat debt maturity structure, lnc assets scale natural number, residuals.
With the proportion of state-owned shares, ownership concentration, the proportion of tradable shares; asset growth, the growth rate of main business, the main agency costs vary with different ownership structure, different growth rates and investment opportunities, we are here grouped indicators Business profit growth; Tobin's Q, book value. Table 1 (omitted) Table 2 (omitted) and Table 3 (slightly) different packet interval regression results.

Third, the empirical results of further analysis

From Table 1, Table 2 and Table 3, the regression results look different range of asset-liability ratio and debt maturity structure and the direction of corporate earnings, asset-liability ratio is still negatively correlated with earnings, debt maturity structure of corporate earnings still positively related to the impact on corporate earnings and the asset-liability ratio than the impact of the debt maturity structure. This is relevant to the contrary with the Western countries, liabilities and short-term debt to enterprise value. The reason, we believe that China's debt to the bank debt, only unable to equity financing companies will tend to the banks' liabilities, leverage levels to convey a negative signal to the market. Restructuring of state-owned commercial banks lag in inadequate protection from its creditors, these restrictions should be the role of the creditors on corporate governance, excessive liability limits the ability of companies refinancing operation of the business will inevitably produce a variety of adverse restraining effect more, liabilities, profitability deteriorates. The role of short-term debt on corporate earnings is that the constraints of the irrational behavior of managers, but in China, the unique relationship between the listed company and the bank makes short-term debt and can not play an effective regulatory role, the conditions of commercial banks in the issuance of long-term loans much more stringent than the short-term loan, advance review and supervision afterwards with more initiative and better results in the case of long-term loans. However, due to the very low proportion of long-term debt of the listed companies in China, it has played a positive role naturally small.
Is generally believed that a higher degree of concentration of ownership and the state-owned holding listed companies, corporate governance issues are more serious, more intense conflict of interest between managers and shareholders, and therefore an increase in liabilities helps to reduce this conflict, improve enterprise results. Although we did not find a positive correlation between the kind of theory expected such companies, but we found that the negative effects of such corporate debt is less than the lower equity concentration and non-state-owned holding listed companies debt negative effects . The negative effects of the high proportion of the outstanding shares of a listed company debt to be less than the low proportion of the outstanding shares of the listed company, and we think that with China's unique market structure. From corporate governance perspective, a higher proportion of outstanding shares through the stock market price signals and take over the control function helps to reduce the principal-agent problems exist in the absence of regulation of the state-owned shareholders. But the reality is that the low efficiency of China's stock market, the motives of minority shareholders neither supervision nor the ability to oversee the company, shareholders of tradable shares a negligible role in corporate governance. In addition, a higher proportion of outstanding shares necessarily mean that non-tradable shares decline in the proportion of the higher proportion of outstanding shares, the competent departments under the same circumstances or departments authorized to manage state-owned assets less the benefits obtained from the listed companies for the management of regulated The enthusiasm and intensity will be reduced accordingly. A higher proportion of tradable shares on the one hand to reduce the regulatory supervision of the original property rights, the other hand, the absence of the corresponding regulatory tradable shareholders, the result is the total reduction in regulated. Thus state-owned holding, conflicts of interest between managers and shareholders of high equity concentration and the high proportion of outstanding shares means that more serious, disutility liabilities in this case is relatively small, but positive utility debt maturity structure relative size is not consistent. The state-owned holding, the positive effect of the high equity concentration of debt maturity is less than the corresponding non-state-owned holding the positive role of the low equity concentration of debt maturity, but the positive effect of debt maturity structure in the case of high-tradable shares have to be greater than the low circulation shares in the case of the positive effects of the debt maturity structure.
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