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Analysis of the Impact of Debt Financing on Over-investment

Author: LiuTian
Tutor: LiuJiWei
School: Dongbei University of Finance
Course: Financial Management
Keywords: Private listed companies Over-investment Debt financing Bindingeffect
CLC: F275
Type: Master's thesis
Year: 2013
Downloads: 10
Quote: 0
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As two important aspects of enterprise production and business operation activities, investment and financing activities ensure the normal and orderly development of enterprises, increase gradually together, at the same time they also inevitably has certain relevance. Especially in recent years, there are more and more enterprise over-investment and blind expansion reports, so people pay more attention on the phenomenon of over-investment, In order to reduce the waste of social resources and unharmonious phenomenon, scholars try to seek ways to reduce the inefficiency of investment from different angles. The purpose of this study is to explore the effects of debt financing on over-investment. And private enterprises, as being more and more important part of national economy, has its particularity of organization structure and system, so I choose private listed companies as research samples.This research is divided into two parts:theoretical and empirical research. In the first place, the article reviews the former research findings and the present situation on this issue, and then the article based on the asymmetric information, agency cost theory, and on the basis of free cash flow hypothesis, combined with the system background of private debt financing of listed companies in China, analyze the impact of debt financing on over-investment, the following empirical part, the author selected Chinese private listed companies from2006to2012as research samples, choose the samples we needed through Richardson model, taking into account the enterprise cash flow condition, company internal governance factors, company size, growth, etc.,and then established the empirical model.There are two innovation points in this article:Firstly, the author choose private enterprises as the research object, yet the predecessors always choose state-owned enterprise or companies of a specific industry, Secondly, on choosing the research point of view, in addition to the predecessors have studied the total debt, debt maturity structure and debt sources structure three aspects, the author also crootivcly add the debt financing cost as a model to conduct the research. The results show that:(1) Overall debt levels is negatively correlated with degree of over-investment, namely the higher the asset-liability ratio is, the lower the degree of excessive investment is.(2) Short-term debt has stronger binding effect on over-investment than the long-term debt.(3) Bank loan credit governance effect is stronger for over-investment than commercial credit.(4) Debt capital cost and over-investment has some governance effect, but the effect is not significant. On this basis, the author also raised policy proposal about how to play the function of debt governance to reduce the extent of over-investment.

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CLC: > Economic > Economic planning and management > Enterprise economy > Corporate Financial Management
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