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Debt Financing, Corporate Governance and Overinvestment

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Abstract:

This paper examines the impact of debt financing on overinvestment in Chinese listed companies. Using an accounting-based framework to measure over-investment and free cash flow, we find evidence that, debt financing can’t mitigate overinvestment in Chinese listed manufacturing companies. Further tests examine whether firm’s governance structures are associated with overinvestment. The evidence suggests that governance factors also can’t mitigate over-investment in China. Reasons lie that hard constraint of debt financing doesn’t play its role in China. There also exists assets maturity and debt maturity mismatching problems in Chinese manufacturing listed companies.

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Periodical:

Advanced Materials Research (Volumes 219-220)

Pages:

1081-1084

DOI:

https://doi.org/10.4028/www.scientific.net/AMR.219-220.1081

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Online since:

March 2011

Authors:

Lei Zhu, Bei Tang

Keywords:

Corporate Governance, Debt Financing, Overinvestment

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© 2011 Trans Tech Publications Ltd. All Rights Reserved

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