Capital Structure and Financial Governance Relations.doc

Capital Structure and Financial Governance Relations Abstract In this paper, the core part of the corporate governance structure - the financial governance structure was discussed. From the point of view of property right capital structure and financial governance structure, internal relations, a correct understanding of capital structure and financial governance structure of the inner cause and effect relationship and interaction between the proposed capital structure of listed companies is only optimized in order to establish incentive and restraint mechanisms of financial governance structure, , and formed in line with the interests of stakeholders shared governance. 【Key Words】 capital structure of financial governance structure of financial authority Separation of ownership and management is an important characteristic of modern corporate governance. Separation of property rights, making the company emerged within the principal-agent relationship. In China, the principal-agent relationship is the impact of the severe imbalance in a weak governance of listed companies and restricts the healthy development of Chinas securities market. Affect the balance of the key factors of corporate governance is actually not the management of technical ways, but the technology behind the right to contest and institutional arrangements, that is the companys own ownership structure and corporate property rights related to this configuration within the company, which is the right to govern the configuration of the companys financial structure. Therefore, the proposed capital structure and financial governance structure of the relationship between the study of improving the capital structure of listed companies to establish an effective system of financial governance structure has a theoretical and practical significance. 1, the capital structure of financial governance structure of The capital structure as an important financial areas, is rich in content and broad scope. Broadly speaking, capital structure contains two meanings: (1) means the equity capital or debt capital, the ratio between the various components of the relationship, often called the equity structure or debt structure; (2) refers to equity capital and debt capital, proportional relationship between the common practice is known as the financing structure or financial structure. Study properties of the capital structure of financial contracts, in fact, that is from the companys financial management structure to understand the corporate governance issues. Capital structure to determine not only the selection of a financing contract and, more importantly, is money behind the property rights are interdependent and interact together constitute some sort of checks and balances of the configuration problem. 1, equity structure, the impact of the financial management structure (1) ownership structure and financial power configurations. The so-called shareholding structure, one that shares taken up by shareholders of both; Second, the proportion of shares held by the shareholders are. The former shows the characteristics of the holder of shares is a manifestation of quality ownership structure, which reflects the degree of equity distribution. Structure as the number of equity shares on a ratio of two levels of content includes: the value level, that ownership structure is the company funded the proportion of investors; financial authority level, that ownership structure is also the value of the property rights associated with the as a percentage. Therefore, the companys shareholding structure not only reveals the proportion of investor funding, but also reflect the different financial claims on the remaining shareholders and thus control over the remaining configuration. “Surplus” property right, as the companys financial contract does not provide for the financial rights and there is no natural occupants, but the remaining financial power of financial control and the corresponding residual financial claims or demands to maximize financial efficiency, making the shareholders become property right under normal circumstances, the owner. In this provision, the financial power is evenly distributed among the shares in each of the various shareholders of the amount of their contribution, enjoy financial power. From this sense, the companys ownership structure determines the property right in the “shareholders” between the ratio of allocation system is definitely one of the foundations of financial management structure. (2) The concentration of ownership structure determines the realization of the right way of financial control. The financial control and financial claims of the symmetry principle of the decision of shareholders monitor the companys power stems from its monitoring of the benefits and costs comparison. Large shareholders and minority shareholders the costs of effective monitoring and control is basically the same, but the gains are far greater than the shareholders of small shareholders. Rational choice of minority shareholders is to give up the right of enterprises to monitor “free-rider.” When the company stock, when highly concentrated, large shareholders are to vote their own rights and voting rights, through the companys board of directors voted by the board of directors select managers, the companys daily financial decision-making delegated to managers to achieve. If managers are not effective discharge of responsibilities entrusted to the shareholders, or the presence of conduct detrimental to corporate value and shareholders through the board of directors to replace managers, which in fact is a kind of shareholders “hands vote” control mode. When the companys shares, when highly dispersed, small shareholders to participate in corporate governance costs and benefits of asymmetry, shareholders did not participate in corporate governance initiative, mainly through capital markets and take over the exit mechanism to constrain the operators, this is actually a kind of “using foot vote “control mode. (3) Different stake holders have different effects of financial governance. By the shareholders entitled to exercise the voting rights of management decision-making can be divided into two types of shares: one is internal shareholders, the other is outside shareholders. The value of the company depends on the internal ratio of shares possessed by shareholders, the greater the share, the companys value higher. A certain extent to improve internal shareholders (in particular the operator) of the equity ratio, can provide an incentive for operators to increase their wealth to work harder so that the operator of the objective function with external investors, in line to reduce the between The agency costs, improve the efficiency of financial governance. Owned and the remaining matches of financial claims of financial control over the remaining shareholders can really exercise the right to financial governance. Owns the remaining shareholders of financial claims to be a corresponding commitment to the companys risk who have a residual right of control should also be risk-maker. Who created the principle of who bears the risk of the shareholders to form a very good incentive and restraint mechanisms. Only the residual rights of control, there is no or very little of the residual claims of shareholders, there is no incentive to choose and supervise the companys operators do not have to assume any responsibility. Thus, the choice of ownership structure and financial management of the main options are a great relationship, which determines who is in financial governance in a dominant position, grasp the corporate financial control. 2, claims structure of financial governance structure of (1) debt structure and financial power configurations. Debt structure is the inter-creditor relationship between the proportion of debt capital. Contractual arrangements based on the debt, creditors, under normal circumstances (except bankruptcy) will not participate in the companys financial operations do not enjoy the companys financial decision-making power, financial implementation of the rights and residual claims. However, due to the modern enterprise system in the principal - agent relationship between the existence of asymmetric information, corporate finance, creditors as the companys main provider of capital, in order to protect their financial interests will not suffer major shareholder and operator of the violation, and gradually requested additional large on the companys financial controls, which share part of the remainder of the financial control of the company, mainly including financial supervision. (2) The incentive effects of debt structure. The value of liabilities with tax savings in the total assets of the EBIT margin is greater than the case of borrowing rates, as the increase in the amount of corporate debt financing, equity is also a corresponding increase in return on capital employed, debt to equity than the inevitable effect of this expansion a large increase in the operators income, thus encouraging operators to work harder. This is generally adopted in the current business incentive stock option approach to the operators circumstances, the debt incentive more apparent. Debt can be used as a security mechanism, so that bus operators to work hard. The reason is the operators utility depends on his manager posts, which depends on the companys survival, once the bankruptcy, the manager will lose all the benefits of serving on the managers, to a higher and higher because of private benefits bankruptcy risk of the loss of all the trade-off between the benefits of working. The possibility of bankruptcy and the debt ratio of positive correlation. Therefore, debt financing can be used as a kind of moderate the conflict between shareholders and managers incentives. Reposted elsewhere in the paper for free download (3) claims control over the structure of the transfer effect. When the total assets less liabilities, EBIT margin interest rates, borrowed money will reduce the presence of equity capital rate of return, and erode shareholder rights. Therefore, it is debt financing, enterprises must have sufficient income or cash used to repay debt principal and interest, otherwise due to the insolvency mechanism, so that their residual control rights and residual claims from shareholders transferred to the creditor, and thus by creditors of enterprises and the the operators to exercise control, to generate new arrangements for the governance structure. This has prompted the operators to moderate personal consumption, investment management more accountable, thereby reducing the separation of ownership and because of the agency costs arising. In the companys total capital under certain circumstances, debt financing is conducive to the investment companys shareholders with less control over enterprises. However, dispersed ownership, the debt to resist the role of mergers and acquisitions will result in the company now controls the proportion of total capital has been offset by the lower. It is from the capital structure and control over the principal-agent competition for two aspects of corporate governance structures play a decisive role. Ownership of enterprises is a state-contingent ownership, as the core of enterprise ownership - financial authority, also has a state of dependence, namely, the right of corporate financial control and financial claims with the enterprise efficiency and financial condition and change. When the company is capable of debt, the shareholders of the companys owners as the companys residual claims and control; and when the companys solvency is insufficient, the transfer of control to creditors. Second, financial governance structure of the capital structure Financial governance structure is embedded in the corporate governance structure in a configuration system on the companys property right arrangements, the core of the companys governance structure and an important component. Financial governance structure through a series of contractual arrangements with property right as the basic link to the capital structure based on the shareholder-centric concept of shared governance on the basis of financial power in the enterprise by the various stakeholders at various levels between the rational and efficient allocation of the formation of an effective financial incentive and restraint mechanisms, to maximize the interests of achieving a set of related institutional arrangements. The main body of the companys financial governance structure are those willing and able to participate in the companys financial governance stakeholders. The configuration of the property right is the core issue of financial governance. Financial management object to be positioned on the rational allocation of property right, including financial decision-making power, financial executive power, financial supervision. 1, the financial governance structure and corporate equity financing Enterprise access to external capital market is the most important long-term sources of financing channels, while the stock market on the outside shareholders of the enterprises through equity funds into the main part. Therefore, the outside shareholders of investment behavior related to the ability of the business at a reasonable cost from the capital markets for funding. One with good financial governance structure of enterprises will attract a large number of investors to enter the enterprise to provide an endless source of funds, capital markets would be rapid development. The poor financial governance structure will damage the interests of outside shareholders against new shareholders willingness to invest. LLSV (1998) empirical studies have shown that better corporate financial governance, shareholder rights countries with a high level of protection of external shareholders (small shareholders) holding proportion is generally higher, the low percentage of the major shareholding, the company can be more outside investors to get financial support. 2, the financial governance structure and corporate debt financing Debt financing too. One can provide good protection of creditors of financial governance structure can be attracted to the creditor a preferential price to provide debt capital. Otherwise, the creditors would be reluctant to provide funds or obtain a copy of the high interest rates. Financial governance structure in a generally inefficient environment, corporate finance financial governance structure for a higher degree of reliance on a matter of fact, the role has bec