Abstract
Enterprise operating liabilities refers to the debt involved in sale of goods or services; they are one of the most important external financing resources for enterprises. Based on the theory of industry economics and corporate finance, using data of A-share listed companies from year 2000 to 2014, this paper discusses two mechanisms product market competition and enterprise asset strategy, and their influence on enterprise operating liabilities. It finds out that, when the product market competition is fiercer, the operating liabilities are more; when the enterprise implements “heavy” assets strategy, the operating liabilities are more; when the enterprise is in the fierce market competition, and the heavy-asset enterprise’s operating liabilities become lower. The further research tests the relationship and the changing speed of the operating liabilities and financial liabilities of firms, by contrast, it finds out the financial liabilities have totally different features and characteristics from operating liabilities. With panel data, hybrid recommender systems method using for reference to our model design, thus, this paper starts from an innovative research perspective, and the research findings have broadened and enriched the strategic theory research, and have some kind of practical significance to the enterprise financing decision in practice for them to achieve the maximum value of enterprises.
Introduction
The western capital structure theory is generally referred to the financial liability, and the product market and the operating liabilities base on the product market are almost not involved in. In western financial theory, operating liabilities is not processing as endogenous elements of capital structure, but it is regarded as commercial credit involved into the study of the working capital management [1]. As for the reason why western capital structure theory ignores the operating liabilities from the merchandise market, in fact, it is due to the practical foundation from the legal and credit social system in western countries. The United States is a typical legal contract society; contract theory has become the cornerstone of sociology and economic theory, also to ensure the normal order of the credit society. In 1990s, China’s National Bureau of statistics’ data has shown that in United States with developed market economy, enterprise’s credit sales account for more than 90%, while the average accounts receivable arrears period is only 7 days, and the average NPL rate is only 0.25%–0.5%. Such a well regulated credit system determines the operating liabilities are difficult to become an important source of funds for enterprises, and then external financing from financial markets becomes the main financing channels for enterprises [2]. Therefore, western financial study is mainly for the financial market, and which’s attention is laid on the investment and financing problems in financial market, such as investment decisions, financing decisions and dividend decisions [3].
Even though the mainstream of western capital structure theory emphasizes the financial liabilities, the company ultimately is facing the “two markets” (financial market and product market) and “two credits” (bank credit and commercial credit) and two types of liabilities (financial liabilities and operating liabilities). The core issue of corporate finance is the flow of capital or flow of cash, and from the theoretical significance perspective, both of these two markets and two kinds of liabilities have such liquidity problems, so they should be incorporated into the field of corporate finance, meanwhile they should be incorporated into the capital structure theory too [1, 4]. Compared with the United States and other developed countries, on the one hand, Chinese enterprises ’operating liabilities are numerous, and the study on corporate debt issues cannot be avoided and ellipsis; on the other hand, the reality is that China is relatively low trust country, which is a consensus among worldwide academic research scholars. Therefore, the research on the China’s capital structure of corporate finance should pay more attention to the product market and operating liabilities.
Since the middle of 1980s, the relationship between product market competition and capital structure has already been the focus of financial academics and industry economists. Previous studies have found that corporate liability is influenced by the product market competition [5–7]. In addition to the product market competition and other external mechanisms which have impact on corporate liability, there exist internal mechanisms affecting on corporate debt’s financing decision. Previous literatures suggest that except the macro and micro environment of enterprise, enterprises’ internal operation mode, such as enterprise asset strategy, plays a vital role [8, 9], and under different operating modes, capital structure decisions are faced with different and complex operating state and internal environment, so the enterprise operation mode effects enterprise external and internal financing’s scale and structure.
In summary, the existing research focuses on the product market competition’s impact on corporate financial liability, however, the product market competition and enterprise internal asset strategy these two mechanisms’ impact on operating liabilities are rarely talked about. So how the product market competition and enterprise asset strategy affect operating liabilities, and what is the role of the external and internal mechanisms, which are urgent problems to solve in this research field.
This paper uses Shanghai and Shenzhen listed companies’ data from year 2000 to 2014 as research sample, and use hybrid recommender systems as reference to build the research model, trying to give an explanation to the influence factors and process mechanism of operating liabilities. This exploratory study reaches a conclusion that: when the product market competition is more intense, the operating liabilities are more; when the enterprise has a “heavy” asset strategy, enterprise operating liabilities are more; as for the asset-lite business company, more intense product market competition leads to higher operating liabilities; as for the heavy-asset business company, more intense product market competition leads to lower operating liabilities. Thus, this paper starts from an innovative research perspective, and the research findings have broadened and enriched the strategic theory research, and have some kind of practical significance to the enterprise financing decision.
The paper structure arrangement is as follows: the second part is theoretical development and research hypothesis; the third part shows research variables and sample selection; the fourth part shows the design and analysis of the empirical research; last part concludes the whole paper.
Theoretical development and hypothesis
Literature review
Since the M&M (1958)’s theory that capital structure and corporate value is irrelevant being proposed, which is based on a series of strict hypothesis, the scholars have loosen up some of the theories postulate, and gradually developed the amendatory MM theory, the Miller model and trade-off theory. So far there has formed a variety of more and more rich and refined capital structure theory [10].
In the late 1980s, relationship between enterprise capital structure decision-making and product market competition, which relates two irrelevant academic field: corporate finance and industrial economics, has gradually attracted people’s attention [11, 12]. The pioneer research on the relationship between capital structure and product market competition begins with James and Lewis (1986). In the article “Oligopoly and Capital Structure: The Limited Liability Effect”, they pointed out that, the enterprise market competition behavior is influenced by the capital structure. Similarly, the performance of enterprises in the competitive product market also affects the enterprise’s financial structure decision-making. To prove their views, they designed a two-stage double oligopoly model, and analyzed the influence of capital structure on the behavior of enterprises in the product market when the demand is uncertain. Due to the limited liability effect [13], in the competition of product market, the behavior of enterprises is more aggressive when they are in debt. Their model proves that the capital structure of the enterprise affects the equilibrium of product market. Therefore, enterprises those who have far-sighted have the power to design their capital structure more accurately, which could obtain excellent performance in the competition of product market. Subsequently Maksimovic (1988)’s study found that the capital structure of the company which measured by financial leverage, has influence on the company’s ability and performance in product market competition, including company’s follow-up investment capacity, the price war and financial sustainability in market competition. And then Zingales [14] pointed out that under the competitive environment, company’s current financing options and financial leverage affect the follow-up product market competition ability, furthermore the current high financial leverage has a significant negative impact on the follow-up investment capacity and price war financial affordability. In China, Zhu Wuxiang (2002) found that when the company expects the increasingly fierce competition in the future, then the company would lower the current scale of debt, resulting in financial conservatism. The author used Yanjing beer as an example for case study to effectively support his theoretical hypothesis. Later, Lyanders (2006)’s empirical research using the U.S. non-financial listed companies as research sample from year 1950 to 2003; found that the company’s financial leverage and product market competition is positively correlated. Deng Jianqin and Zhu Wuxiang (2006) found that when the product market competition is very intense and the existing business is running-down fast, it will choose the financial radical behavior, if the company is subject to financing constraints. Liu Zhibiao et al. (2003) using empirical data of China’s listed companies during the period of 1997–2001, also found that the degree of product market competition is positively related to financial leverage. SamuelFosu (2013) investigated the relationship between capital structure and firm performance, paying particular attention to the degree of industry competition. It applied a novel measure of competition, the Boone indicator, using panel data consisting of 257 South African firms over the period 1998–2009, and the results suggested that product market competition enhances the performance effect of leverage [14, 15].
Meanwhile, the operation mode of the enterprise is also very important for the financial decision of the enterprise. In recent years, scholars have also made a series of researches about the relationship of enterprise operation mode and corporate financial liabilities, especially the “light or heavy” asset strategy. Through the establishment of an asset-lite value model, Lin and Chih-Pin Huang (2011) discussed the enterprise asset strategy selection’s impact on corporate financial decisions and corporate value; Fen-MayLiou (2011) through the research on the capital operation of the communications industry, demonstrated that America’s asset-lite business communications company, have gained greater competitive advantage, using the planning of financial strategy of enterprises; Sun Li (2003) first proposed the asset-lite management concept in China, and had a comprehensive analysis of the operation theory and the operation mechanism of the core of asset-lite strategy, as well as financial strategy under the asset-lite strategy; Dai Tianjing (2012) believed that from the angle of financial strategy driven, the company’s investment strategy, the financing strategy, and dividend policy should be based on the characteristics of the asset mode and cash flow structure to make strategic planning. All the above research results have put forward the relationship between enterprise asset strategy and financial decision; however, most of the literatures are qualitative research and China’s research in this field is in the initial stage. Therefore, corporation’s asset strategy and corporation liabilities still need further study, especially in the “emerging and switching” economic market and financial system in China.
To integrate and develop the above-mentioned important research views, throughout the domestic and foreign existing literatures, this paper are trying to make efforts in the following aspects: first, the existing point of view of capital structure based on the internal and external mechanism is focus on enterprise financial liabilities, while operating liabilities in China are one of the important non-negligible funding sources, they should be involved into the capital structure research; second, the existing research of product market competition and the assets mode of enterprise are separated, and the impact of external mechanism (product market competition)and internal mechanism (asset strategy) on the financial liabilities are regarded respectively, however, corporation needs to face the two kinds of mechanism environment together, we should consider the interaction of these two kinds of environment impacts on capital structure.
Research hypothesis
Enterprise operating liabilities refers to the debt involved in sale of goods or services, financial debt is debt involved in financing activities. The former arise from the day-to-day activities of enterprise, including accounts payable, notes payable, accounts receivable in advance, staff salaries payable, taxes payable and so on which are from various stakeholders like suppliers, customers, employees and government; the latter are produced in the financing process of the enterprise, including short-term loans, long-term loans and long-term bonds. Through the decomposition of ROE, Nissim and Penman (2001) found that the size of ROE is related to financial liability, but also related to the operating liabilities, and found that the two kinds of liabilities have different inner mechanism. Summers and Wilson (1999) through the empirical study of 655 companies in the UK, found that most companies put commercial credit as a cheap attainable source of funding. Huang Lianqin and Qu Yaohui (2010) found that relative to the financial liabilities, both large and small companies are willing to sale the trading financial assets and get more revenue by deferring payment to the other side of the transaction to obtain “no cost” operating liabilities. Therefore, we can conclude that for the enterprise, to obtain more operating debt is a “natural preference”.
Operating liabilities are affected by the product market competition. From the SCP paradigm of industrial organization theory, we believe that the market structure determines the enterprise behavior and then the enterprise behavior determines the enterprise performance. As an important means of financing, the enterprise operating liabilities should be influenced by the market structure. Market competition is an important component of the market structure, which determines the status of enterprises in the transaction, and the behavior of enterprises. Michael Porter’s competitive forces model states that the competitiveness advantage of enterprises in the market, is depending on competitive position with other competitors in the industry, and is also determined by the competitive position compared with the upstream and downstream industry. When the enterprises are in the fierce market competition, at this time the cash flow demand is more intense, and also due to low profits in the market competition, operating liabilities with the lower financing cost could bring a more adequate cash flow for the enterprise. So they own more willingness to manage operating liabilities financing; in addition, from the point of view of comparison with the upstream and downstream competitive position, the enterprise in intense product market competition, is often in the period of high-speed growth of industrial life cycle. At this time, upstream enterprises are subject to demand changes of downstream, and then their supply and competition situation are fiercer. According to the theory of comparative advantage, if the firms that provide commercial credit are in enough competition, then the price of commercial credit should be lower than others, and most economists agree with this inference. Therefore, we can infer that, when the product market is more intense, the upstream business’s competition intensifies, and then they provide more business credit to downstream business. Based on this, we put forward the hypothesis 1:
H1: When product market competition is more intense, enterprises operating liabilities get more;
The competition in the product market is an important external mechanism influencing on the behavior of corporate finance, at the same time, asset strategy is also the key inner-corporation factor that affecting debt financing. As for enterprise assets, its operating strategy is divided into two categories: heavy asset management mode and asset-lite operation mode. When the ratio operating income divided by fixed assets is larger, enterprises tend to asset-lite operation, namely under the same conditions, there needs less fixed assets investment to obtain the same operating income target. Asset mode directly determines the repayment ability and credit risk, and is an important factor of capital structure and debt financing decisions. If companies tend to the heavy asset management mode, the collateral assets (such as fixed assets, etc.) account for larger proportion, the enterprise’s overall credit ability is stronger, and credit risk is lower, which can bring more funding, including enterprise operating liabilities and financial liabilities.
In the long run, when the supplier offers commercial credit the customer, it is not only the short-term credit risk for supplier to consider, but also the long-term relations of cooperation with customers. From this point of view, if the fixed assets occupy larger proportion of the customer’s assets, it is indicating that the outputs of the company’s product line are relatively considerable and the raw materials demands tend to be massive and stable in the long-term. Therefore, the strategic cooperative relations between this kind of heavy asset mode enterprises and the upstream suppliers in industrial chain are more closely, aggregating into an inseparable whole and depend more on each other. In addition, Petersen and Rajan [2] found that, suppliers, customers and employees have greater information advantage compared to the bank, and Burkart and Ellingsen (2004) also believed that the supplier’s information advantage is greater. Enterprise asset information can directly pass to the external stakeholders of enterprise investment for strategic decision-making, such as new suppliers’ understanding on the downstream industry enterprises, including enterprise’s production capacity and demand for raw materials.
Therefore, enterprise asset mode has played a strong role to enterprise operating liabilities. If we do not consider external factors, heavy asset management companies could obtain more operating liabilities. Based on this, we put forward the hypothesis 2:
H2: Heavy asset strategy enterprise could obtain more operating liabilities;
Thus, we have analyzed the enterprise market structure and internal asset operation mode respectively. We conclude that if we do not consider the enterprise’s product market competition, the commercial credit is flowing more to heavy asset strategy enterprises. When we take the enterprise’s product market competition into consideration, we believe it will turn to be a completely reversal result, which is that if the product market competition is more intense, the supplier is more inclined to asset-lite enterprises for their commercial credit. The reasons are as bellows: (1) due to fierce competition in the product market, each enterprise in competition obtain lower profit, meanwhile, heavy asset mode enterprises have the response lag problem, less rapid integration and poor self-adapt ability to the changes in the market. And that the rupture of capital chain occurs easily in the fierce competition, which leads to high bankruptcy costs, so that will greatly increase the enterprise credit risk exposure for heavy asset mode enterprise; (2) for different product market competition environment, the optimal asset strategy is also different. Compared with heavy asset mode enterprise, asset-lite mode enterprise has seized the core business and outsources the non-core business, implementing the value driven capital strategy, and it is more suitable for the tense product market competition environment; (3) meanwhile, asset-lite enterprise’s resource integrating ability is stronger and reaction speed is faster, such enterprises could reflect their own core competitiveness swiftly in the competition and survive longer in the long-term economic cycle in China. In conclusion, asset-lite operation mode is more applicable for the fierce product market competition environment, and when suppliers offer the commercial credit in the fierce competition, consideration must be given to the survival ability of different type of the enterprises. Therefore, we assume that suppliers would choose asset-lite strategy enterprises to offer commercial credit, and establish long-term strategic cooperation relationship. Based on this, we put forward the hypothesis 3:
H3: For asset-lite enterprise, when product market competition is more intense, operating liabilities is higher; for heavy asset business, when product market competition is more intense, operating liabilities is lower.
Variable selections and model design
Variable selection
Dependent variables
Dependent variables in our empirical research are total liabilities (Debt), operating liabilities (Operating Liability), financial liabilities (Financial Liability) and liability structure (Debt Pro). According to Huang Lianqin and Qu Yaohui (2010), Burkart and Ellingsen (2004) and other researches, this paper define notes payable, accounts receivable, accounts receivable in advance, employee compensation payable, taxes and fees payable, dividends and other payables as the operating liabilities; short-term loan, financial liabilities held for trading, interest payable, noncurrent liabilities within a year, bonds payable and long-term loans as financial liability.
Independent variables
First independent variable in our empirical research is the degree of product market competition. So far, there has not been a universally recognized and operable index to accurately reflect the level of competition in the academic field. Similar representative studies are often based on the Herfindahl-Hirschman Index (HHI) of industry. Herfindahl-Hirschman Index which reflects the market concentration is calculated by the sum of the square of the proportion that each company’s market shares of the total market share. The formula is as follows: HHI = Σ (Σ Xi/Xi) 2 and Xi is for the company’s sales. When the upper limit for one industry to accommodate enterprises is certain, the more enterprises with the same scale in a certain industry, the more intense the competition among the enterprises in the industry, and then the greater the degree of influence from other enterprise behavior. The Herfindahl Hirschman index reasonably reflects the industry market concentration degree, and can generally reflect the situation of competition in the industry: the lower Herfindahl Hirschman index is indicating that the industry concentration degree is lower; meaning the degree of competition in the industry is more and more intense. Therefore, the smaller the Herfindahl Hirschman index, the greater the intensity of competition in the industrial market.
Another independent variable is asset mode. The formula is as follows: the enterprise asset mode = enterprises operating income/fixed assets. Among them, the operating income that per unit of fixed assets brings is big, and then it tends more to the asset-lite mode, otherwise, is the heavy assets operation mode.
Control variables
Our control variables are company age (Age), growth index (Growth), corporate cash (Cash) and buy-and-hold yield (Return). We choose Tobin Q ratio to measure the growth of the firm, and Q equals to the ratio of the total market value and the book value of the total assets. According to the empirical conclusion so far, factors that impact listed company’s capital structure by scholars of China, we expect the older enterprises are, the enterprises operating liabilities are larger; the greater growth speed, more cash holdings and higher buy-and-hold yield are, the enterprise operating liabilities are less.
Other variables are defined in Table 1.
Variable definition table
Variable definition table
In order to test these hypotheses, we select all A-shares listed companies of China as the research sample, and the study involved an annual range of 2000 to 2014. Data screening process is as follows: firstly, removing the financial industry enterprises; excluding missing data of enterprise; finally eliminate interrupted data of enterprises forming a balanced panel data with a time span for 15 years. To eliminate extreme values influence on the empirical results, all continuous variables of enterprise level are winscorized (shrinkage of the tail) at the level of 5%. After the above treatment of samples; we finally get 5625 samples in this empirical research. All the financial data are derived from the Wind database.
Model design
According to the basic model of Horen Van (2007) and Liu Shouet al. (2013), the research model of this research is as follows. The model is used to examine the relationship between the product market competition and corporate debt, and examine how the assets mode adjusts this relationship, where i represent the enterprise, t represents the corresponding year.
Descriptive statistics
From Table 2 descriptive statistics, it can be seen that in the period 2000–2014, the mean of China’s listed companies’ operating liabilities (Operating) is 0.334, and financial liabilities (Financial)’s mean is 0.306, indicating that the overall enterprises are obtaining operating liabilities greater than financial liabilities on the average; asset-lite mode (LA)’s mean is 0.478, indicating that on overall the proportion of corporate tangible assets is larger and biased towards heavy asset mode; the average degree of product market competition is 0.110, indicating that most industries are in a intense level of competition in China recently.
Descriptive statistics
Descriptive statistics
Note: In this paper, all of the continuous variables have winscorized in the level of 5%, and have removed the financial industry and the lack of financial data sample.
Figure 1 is the trend chart of the annual average total liabilities, financial liabilities, operating liabilities and debt structure of China’s listed companies in 2000–2014. It can be seen from Fig. 1 that, China’s total debt of listed companies in 2000–2014 has showed an upward trend, except year 2007, 2013 and 2014 that debt level has decreased slightly over the year, and the total amount of debt is in the expansion. In addition, the total amount of financial liabilities and operating liabilities are reversed in year 2005. Before year 2005, financial liabilities are more than enterprise operating liabilities, the debt ratio is greater than 1; after year 2005, the enterprise operating liabilities increased year by year, while the financial liabilities are declined in 2006–2010, and then operating liabilities have exceeded the financial liabilities, leading the debt ratio less than 1. In recent years, except year 2011, the debt ratio of financial liabilities and operating liabilities is gradually reducing, namely the difference between operating liabilities and financial liabilities has been enlarged, therefore it can be seen that operating liabilities as one of the external financing channel is becoming more and more important.
2000–2014 China’s enterprise debt trend chart.
From Table 3 the mean difference test analysis, we can draw that: (1) for the product market competition, in dispersed competition structure industry, relative to the concentrated product market competition, the enterprise’s total debt (Panel A), the enterprise operating liabilities (Panel B) and financial liability (Panel C) are greater, and the debt structure (Panel D) is smaller, and the average mean difference is significant with a 1% significance level (2) for the assets mode, relative to the asset-lite companies, heavy assets enterprises’ debt levels (including the total debt, operating and financial liabilities) are higher, and the debt structure is smaller, similarly, the mean difference test is significant at the significance level of 1%.
Mean difference test of debt
Mean difference test of debt
Also, due to the use of panel data regression analysis, this research also apply the unit root test and Akaike information criterion test, and it has excluded the time trends and lagged item of sample data, namely that sample data does not contain unit root, and it is the static panel data just as the model we have reasonably and effectively set before.
Based on Hausman test results of each regression model, we believe that the fixed effect model of panel data would be more suitable, so the results of the fixed effect model are listed. Table 4 is the result of multiple regression analysis of product market competition, enterprise asset mode and operating liabilities. Hypothesis 1, 2 and 3, in general, have stated that enterprise product market competition is more intense, enterprise operating liabilities are more; heavy asset management enterprises’ operating liabilities are more; for asset-lite enterprise, when product market competition is more intense, operating liabilities are higher; for heavy asset business, when product market competition is more intense, operating liabilities are lower. From Model (1), we can see that without considering the enterprise assets mode, the correlation coefficient of product market competition (HHI) and the variable operating liabilities is –0.075 with 1% of the significance level significantly. It shows that the product market competition is positively related to the enterprise operating liabilities (for HHI is small, it tends more tense competition), and the regression results are in line with the expected hypothesis1.
Product market competition, enterprise asset mode and enterprise operating liabilities
Product market competition, enterprise asset mode and enterprise operating liabilities
Notes: Figures in brackets are T value; *, **, *** are meaning significant level of 10%, 5%, 1%, respectively.
Model (2) is results of the regression with the enterprise assets mode, reflecting the relationship between the enterprise assets mode and operating liabilities. In Model (2), the coefficient of La is –0.136, and it is negative significantly at 1% significant level. The results show that the smaller the LA, the more enterprise biased toward heavy asset mode, namely the tangible assets proportion of the enterprise is more, and the operating liabilities are more. At this point, the financial risk of the enterprise is smaller, so the enterprise operating liabilities are more. The results meet the expectations of hypothesis 2 in this paper.
Model (3) has introduced the cross-multified terms LA* HHI, and tests the relationship of the product market competition (HHI) and operating liabilities under different enterprise asset mode. In Model (3), the coefficient of the cross-multified terms (HHI*LA) is –0.188, which is significantly negative at the 1% significant level. Results show that when one enterprise is in the intense market competition (HHI is smaller) and the structure of competition of the industry dispersion and violent, if the company tends to heavy asset mode, then its corresponding liquidity risk is bigger. Therefore, under the action of two mechanisms: product market competition and corporate assets mode, enterprise achieves smaller operating liabilities. The introduction of the adjustment variables of the enterprise asset operation mode makes the correlation between the product market competition and the enterprise operating liabilities reverse.
According to the empirical results, we have drawn the relationship matrix of product market competition degree, enterprise asset management mode and enterprise operating liabilities in Fig. 2. Matrix diagram will be divided into four types of enterprises quadrant in accordance with the internal and external two mechanisms we have talked about. The matrix indicates that “asset-lite, high competition” and “heavy asset, low competition” these two types of enterprises could obtain more operating liabilities; while “asset-lite, low competition” and “heavy asset, high competition” two types of enterprises have no advantages in obtaining operating liabilities.
The relationship matrix of product market competition degree, enterprise asset mode and enterprise operating liabilities.
Other control variables are as follows: when enterprises growth is larger, operating liabilities are bigger; more corporate cash holdings results less operating liabilities, indicating that corporate rely more on the internal financing then has less enterprise external debt financing; the earlier the enterprises were established, the greater operating liabilities they have; stock return rate is higher, and the enterprise operating liabilities are more, indicating that creditors are sensitive to the enterprise stock return rate.
The above empirical results show that the relationship between product market competition, enterprise assets mode and enterprises operating liabilities. In order to further illustrate the debt structure, we apply further empirical analysis including the total debt, financial liabilities and debt structure. Table 5 shows the panel data fixed effect regression results which reflect the correlation of product market competition, the enterprise assets operation mode with total debt, financial liability and debt ratio.
The degree of product market competition, enterprise asset management mode and corporate liabilities
The degree of product market competition, enterprise asset management mode and corporate liabilities
Notes: Figures in brackets are T value; *, **, *** are meaning significant level of 10%, 5%, 1%, respectively.
In Table 5, model (1)’s dependent variables are the company’s total liabilities. From the panel analysis of fixed effect model, with other factors under control, the cross-multified terms LA* HHI’s coefficient is 0.028, and is not significant, indicating that the total liabilities are not significantly correlated with cross-multified terms product market competition and enterprise assets operation mode. This result has verified our inference that the mechanism of financial and operating liabilities these two types liabilities are not totally the same, then this paper applies empirical test on corporate financial liabilities for further analysis.
Model (2) is the result of the multiple regression analysis of the product market competition, the enterprise asset operation mode and the financial liabilities of the enterprise. The coefficient of LA* HHI is 0.152; and positive significant at 5% significance level. The result indicates that when enterprises are under intense product market competition (the HHI is small), the industry competition structure is dispersed and intense, and at this time the banks as financial liabilities creditors, are without a detailed understanding of the business situation, then the collateral value of tangible assets are more prominent. Therefore, if in the fierce competition industry, the greater the value of tangible assets of enterprises, namely the corporation is in heavy assets mode, in contrast to the operating liabilities, the credit of the banking institutions is more at this time. The introduction of the adjustment variables of enterprise asset operation mode has enhanced the correlation of product market competition and corporate finance debt. The empirical results show that under the influence of the product market competition and the enterprise asset operation mode, the financial liabilities and operating liabilities have opposite change direction.
Model (3) is the result of the multiple regression analysis of the product market competition, the enterprise asset operation mode and the enterprise debt structure. In Model (3), the coefficient of LA* HHI is 1.107, significantly positive at 1% significance level. It shows that if the enterprises tend to heavy asset management and in a more intense market competition, the ratio of enterprise financial liabilities and operating liabilities is greater. Therefore, in consideration of the two mechanisms of product market competition and assets mode, the ratio of them is becoming greater, as is known from model (2) that the financial liabilities and operating liabilities change in the opposite direction, so we can conclude that the changing speed of operating liabilities is greater than the financial liability.
We adopt the following several ways to implement the robustness test: (1) using the number of firms in the industry (N) instead of HHI to present the degree of product market competition, the results have showed no material change; (2) based on the existing literatures, this paper selects the Lerner Index to measure the competitive position of enterprise. Reference Xing Liquan and Chen Hanwen (2013)’s approach, in this paper, we define the Lerner Index for enterprises as operating income – business sales – cost – management costs, divided by operating revenues. If Lerner Index is greater, it represents that the enterprise pricing power is stronger in the industry, and the enterprise’s competitive position is higher. And the results have showed no significant change; (3) using the system GMM method to re-estimate the model, and the result has showed no obvious changes.
Conclusions and policy recommendations
In this paper, using the industrial economics theory and the corporate finance theory, it describes the effect of internal and external mechanism on two kinds of liabilities, and illustrates the changing speed of two kinds of liabilities. The study has found that: (1) when product market competition is more intense, enterprises operating liabilities get more; (2) the heavy asset mode enterprise have more operating liabilities; (3) For asset-lite enterprise, when product market competition is more intense, operating liabilities are higher, conversely, it’s on the contrary; (4) the changing direction of financial liabilities and operating liabilities are in contrast and the changing speed of operating liabilities is greater than the speed of financial liabilities. And the use of system GMM and referential hybrid recommender systems method makes our results more robust.
Subject to China’s special institutional and environmental characteristics, debt financing is influenced by the double impact of the industry environment and enterprise internal assets. Furthermore, operating liabilities is more sensitive and vulnerable to shocks, while financial liability is relatively stable, so the debt management for operating liabilities is very important, especially given that the operating liabilities are becoming more and more widely used in China recently under China’s special financial system and credit policy. At the same time, the empirical research results show that enterprises in the fierce market competition environment, if enterprise choose the asset-lite operation mode, they are more likely to get operating liabilities. So the enterprise managers’ decision-making should be according to their own assets mode and then select the appropriate financing ways, also according to the financial situation make the appropriate adjustments to enterprise asset mode, to adapt to the changing market place of China, achieve the optimal value of enterprises and promote the development of China’s real economy.
The research conclusion provides a new perspective that connects the enterprises operating liabilities with internal and external mechanisms, so it widens the research ideas about the capital structure influence factors, enriches the research on financial strategy theory, and has certain practical significance of the enterprise financing decision and operation decision formulation.