An Empirical Research on Effect of Debt Financing of Different Company Growth on Investment Behavior
|School||Jiangsu University of Science and Technology|
|Keywords||debt financing investment behavior company growth investmentopportunity set|
The modern capital structure theory regards debt financing both positive and negativeon corporate investment. From one point of side, debt can control and govern excessiveinvestment, on the other side; debt may result in conflict between shareholder and creditor,which will make manager behave asset substitution and investment insufficiency. Differentcompany has different growth level, their funds quantity, funds source, capital cost bearingcapability, investment items and size are not all the same. So, it is necessary to research oneffect of debt financing on corporate investment, especially when company in differentgrowth level. The research will let us know more about debt financing and it will instructcompany set up a reasonable capital structure, make full use of financial leverage, andincrease debt financing effectiveness and efficiency.The paper first analyzes research background, make research purpose and significanceclear, define main concepts, and put forward research framework and innovations. Next, thepaper review foreign and domestic literatures summarize previous research content, method,and conclusion. After it, it is clear that there is different opinion on effect of debt financingon investment, especially when company in different growth level. More work could bedone to further research on this topic. With theory analysis support, the paper analyzes debtand investment characteristics of different company growth, and to different companygrowth, the effect of different debt maturity structure on its investment.According to theoretical analysis, the paper put forward empirical research hypothesis,introduce regression variables and models. The paper review previous methods used formeasure company growth, make commentary on its limit and explain a new way----“Investment Opportunity Set” index, the paper explain its rationality and validity andintroduce “Investment Opportunity Set” substitute variables.In empirical research part, the paper take listed company in manufacturing field asresearch objects, collect panel data in2010-2011as samples, analyze effect of debtfinancing of different company growth on investment. First, adopt six measurable variablesas “Investment Opportunity Set” substitute variation; using factor analysis to measure“Future investment opportunity”, that is “company growth”. Then, make descriptive,correlation and regression analysis to total and group samples.Some conclusions are as blow:No1. The effect of debt financing on corporate investment scale. Among all samples,there is a negative relationship between debt financing and investment scale. For low company growth, that means debt can control and govern manager’s excessive investment.For high company growth, that means debt may restrain investment, cause investmentinsufficiency.No2. The effect of different debt maturity structure on corporate investment scale.Among all samples, short-term debt is negative with investment scale, while long-term debtis positive with investment scale. For low company growth, it is short-term rather thanlong-term debt controlled excessive investment. For high company growth, short-term debtrestrained investment. Long-term debt both promote high growth and low company growthinvestment.No3. The effect of different debt sources on investment scale. Among all samples, bothbusiness credit (Account payable, notes payable, advance from customers) and bank loanare negative with investment scale, and business credit has more significant effect than bankloan. For low company growth, business credit controlled and governed excessiveinvestment. For high company growth, both business credit and bank loan causedinvestment insufficiency.According to above research conclusions, the paper put forward some suggestions:No1. The company should set up a reasonable capital structure, utilize debt financingrationally, bring its positive effect into play and reduce its negative effect.No2. The company should make rational use of short-term debt.No3. The creditor should take debtor company growth level, and their debt financingeffect on its investment into consideration, make more flexible contract.No4. Develop bond market in our country is necessary.