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Corporate governance structure and corporate liabilities financing

Author: ShiZhiGui From: www.yourpaper.net Posted: 2009-04-02 15:04:21 Read:
[Abstract] liabilities financing is an important means of enterprise development, soft constraints to stimulate the desire of management personnel loans, high debt ratios exacerbated by the financial risks of enterprises and banks. There is a need to improve the financing environment Debt implementation mechanisms bank to establish a win-win.
[Key words] governance structure; soft constraints; debt performance; countermeasures

Of debt financing is the main form of external financing, is the result of the game between the different stakeholders. Accelerate the pace of development, to maximize enterprise value and improve the corporate governance structure has a different role. In the choice of financing mode should be to optimize the combination according to the actual situation, to minimize the potential risks of the financial crisis.

Debt financing of the corporate governance structure of

The core of the modern enterprise system is a sound corporate governance structure. The so-called corporate governance structure, to deal with the different stakeholders that the relationship between shareholders, creditors, managers and workers rights and liability structure to achieve Enterprise efficient operation of a set of institutional arrangements. The ultimate goal is to optimize the decision-making to maximize enterprise value. The determination of the level of debt is an important part of the company's financial decision-making, the final decision is the result of the game between shareholders, creditors and managers.
The modern enterprise must pass it possible to obtain sustainable development stakeholders service. For many reasons, the lower our country by enterprises through issuing stocks, bonds, the proportion of direct financing and indirect financing by banks, underground banks is widespread. Different way of financing the cost of financing, financial risk difference. Some companies only emphasized maximizing shareholder wealth, while ignoring the concerns of other stakeholders, blindly borrowing, these issues are closely related to the corporate governance structure is not perfect. In this mode of financing, the interests of creditors can not be adequately protected. This is certainly not conducive to develop a reliable supplier of funds, which is not conducive to the continued growth in shareholder wealth. The establishment of a modern enterprise system, it is through the improvement of corporate governance structure, the interests of checks and balances and scientific decision-making mechanism to determine whether the number of debt financing and debt financing, and then change the current level of indebtedness.

The pros and cons of the debt to the sustainable development of enterprises

(A) liabilities managers incentives and constraints
The rights of business owners with their control of resources increases, their remuneration and the size of the corporate assets, sales revenue, profit was positively correlated, so they have run the business expansion to more than the optimal size of motivation. Enterprises through liabilities acquired funds to be repaid, business owners must be in the maturity of the debt, the repayment of debt principal and interest cash, or face litigation and bankruptcy. Bankruptcy under the conditions of market economy managers hard constraint mechanism and maximum penalties. The effectiveness of the operators depends on his managerial position, which depends on the survival of the enterprise, once the enterprise bankruptcy, the manager will lose all the benefits of serving. For managers, there is a trade-off between the risk of higher personal income and higher due to bankruptcy and the loss of all duty benefits. Potential pressure, managers had to borrowing constraints impulse to strive to improve the company's performance. The size of the incentive and restrictive effect also depends on another important factor in the implementation of the stock options, a share of the Company's shares held by company executives, the smaller the proportion is less conducive to mobilize their enthusiasm. Of debt financing can only be a positive incentive and restraint by business executives, thereby reducing operating costs, and indirectly enhance enterprise value, liabilities and equity replacement and can not create value for the enterprise. The source of value creation is the right investment decisions. In this sense, the theory of MM has nothing to do gearing ratio has nothing to do with the enterprise value, suggesting that we attach importance to investment decisions, select the investment projects of the net present value is greater than zero, the implications are profound.

(B) liabilities allows business owners always face risk
control
Financial contract theory, in the case of the normal operation of the enterprise, the creditor does not have the right to obtain a copy of and control over the remaining assets of the enterprise. When the lead to bankruptcy due to the presence of liabilities, the creditors will be involved in the operation of the business and the remaining assets of the right to obtain a copy of residual rights of control. Therefore, debt financing has a the insolvency mechanism and the "camera control" function. The bankruptcy is not only regarded as final compensation mechanism, creditors may also result in control of the transfer from shareholders to creditors. It can be said that the nature of the debt covenants connotation with control over the configuration, select a different debt levels means choose a different corporate governance structure. The debt covenants achieve a natural way to control the camera.

(C) debt level has passed the enterprise value of the information function
Ross (Ross, 1977), the probability of bankruptcy and the quality of corporate negatively correlated, and debt levels are related to the same level of indebtedness of the ruin probability for enterprises of different quality. Good corporate bankruptcy probability is low, the poor quality of corporate bankruptcy probability. This means that at the same time using a higher debt levels, good corporate lower cost, poor quality companies will not be able to imitate the excellent business operators and the choice of the high gearing ratio. Therefore, the debt levels as a signal to pass quality. Corporate debt - asset structure is a kind of inside information to the market signals tools. Liabilities - assets rise means that the operators of higher expected future income, the market value increases, so investors is a positive signal.
Liabilities will help the enterprises to maximize the value but also because of the tax deductibility of the interest effect, the higher the income tax rate, the tax deductibility of the effect is more obvious debt financing more than the advantages of equity financing, debt desire more intense. Of debt financing at the same time of great utility to the enterprise, will bring some financial crisis. Enterprises should establish risk monitoring mechanisms and response, risk mitigation measures when making capital structure decisions, must be into account the impact of the capital structure of the control of the liabilities financing. General corporate financing order of priority: internal financing; followed by debt financing; equity financing last.

Soft budget constraints, attaches great importance to the debt financing

Financing model of bank financing, Japan, Germany, bank supervision is divided into three phases, namely the prior monitoring, monitoring and ex post monitoring things, and thus determines the bank-based governance structure (another The financing model is based Anglo-American equity financing, and thus determines the market-oriented governance structure). Compared with the stock market securities financing, the bank in the process of financing the more obvious advantages. Because banks have to master the professionals of the credit analysis method, they are able to direct contact with the company's accounts, and maintain close contact with senior management, which allows banks to lower costs for the company's internal information.
In the case of China's capital market is not perfect, incomplete information, should give full play to the the bank information and supervision advantage of, and active use of debt constraints to participate in corporate governance. At present, China has established a credit rating system and index system, but in the course of implementation is still a "debt of gratitude", and the company's financial data unreal seriously affected the credibility of the results of the rating. Therefore, in addition to government intervention, due to bank policy mistakes caused by inefficient lending and relationship lending, in its massive bad debt ratio of possession can not be ignored. In addition, in the process of corporate loans, banks do not have enough incentive to monitor the use of funds of the enterprise. Monitoring of bank business things is almost empty, resulting in over-investment by the debt managers restraints is not to achieve, but it tends to invest in high-risk projects. The existence of these problems so that our corporate debt financing characteristics showed strong soft budget constraints. Lack of equity incentive managers, managers lack of market-based resource control revenue managers unlimited loans to expand the size of the company, exacerbated by the debt financing risk.

Fourth, improve the debt to fulfill mechanism, establish a harmonious and win-win financing environment

(A) improve the "Enterprise Bankruptcy Law, the establishment of effective national corporate insolvency mechanism
Liabilities governance function effectively also depends on the existence of sound and sound insolvency system, the bankruptcy system is ex post monitoring of the creditors of the enterprise. But in our bankruptcy practice, shareholders, creditors and local governments do not want the Enterprise Bankruptcy, bankruptcy is not the result of a market choice. The modified "Enterprise Bankruptcy Law came into force in June 2007, but the bankruptcy operation is still a lack of market forces, often become a means of avoiding the debt of the debtor, in reality, is difficult to achieve the purpose to protect the interests of creditors and punish operators. Perfect the effective debt fulfill mechanism is to governance effect of debt financing, and establish a debt to fulfill mechanism lies in the establishment of effective national corporate insolvency mechanism for the transfer of the right of control through the implementation of the bankruptcy system, can effectively strengthen the mechanisms of self-fulfillment , but also to protect the interests of creditors in the event of payments crises, and enhance the governance effect of debt financing.
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