Debt Distribution, Subsidiaries' Diversification and Cost of Debt Financing

Abstract

Abstract: In the context of the independent financing of the subsidiaries under the authorized operation mode, this paper analyzes and tests the influence of the distribution of debt financing between parent companies and the subsidiaries on the costs of the combined whole debt financing of the listed company. The findings show that the higher the proportion of debt financing undertaken by the subsidiaries, the higher the cost of the combined overall debt financing of the listed companies will be. Further research finds out that the higher degree of industrial diversification and geographical diversification of subsidiaries will strengthen the positive correlation between the proportion of debt financing undertaken by subsidiaries and the cost of the combined overall debt financing of the listed companies. The supervising effect of the parent company appointing senior executives to subsidiaries and the insurance effect of the parent company providing financing guarantee for subsidiaries can both alleviate the positive correlation between the proportion of debt financing undertaken by subsidiaries and the cost of the combined overall debt financing of the listed companies.

Key words: debt distribution, industrial diversification, geographic diversification, cost of debt financing

CLC Number:

F275.1

WANG Long-feng, MA Zhong, SHU Guang. Debt Distribution, Subsidiaries' Diversification and Cost of Debt Financing[J]. Contemporary Finance & Economics, 2020, 0(6): 126-137.

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