Research Review on the Influence of Financing Constraints on Enterprises' Investment Efficiency

Abstract

Investment activity is the most important financial activity of an enterprise, the investment efficiency of an enterprise even affects its survival, enterprise's financing capability brings dynamic source for its investment. However, because of the existence of agency problems and information asymmetry, enterprises often meet different degrees of financing constraints, which will affect enterprises' investment behaviors, this paper summarizes the relationship between financing constraints and enterprises' investment efficiency through combing related documents on financing constraints and investment efficiency. Financing constraints Modiglinai and Miller (1958) assumed that under the capital market of perfection competition, without the influences of transaction cost, income tax and other factors, internal and external financing can be substituted, it also suggests that enterprises' financing behavior will not affect their investment behavior. However, in actual life, the above described capital market is not exist, Myers and Majluf(1984) found that the existence of information asymmetry improved enterprises' external financing costs, which caused that enterprises have to give up some NPV>0 projects. FHP(1988) thought that the reason for enterprises' internal capital costs lower than external capital costs is the existence of transaction, tax advantages, agency cost, financial crisis and information asymmetry. Furtherly, they specifically studies and analyzed the difference between internal financing costs and external financing cost of managers and potential new investors or creditors caused by information asymmetry. And, they defined this phenomenon that financing costs difference constrained enterprises' investment behavior as financing constraints. The above view is regarded as generalized financing constraints. Therefore, every enterprise is faced with different degrees of financing