A Research On Optimization Model For Capital Structure Based On Maximizing A Company's Value

In recent years, the interdisciplinary of capital structure theory and other fields has attracted much attention. The intersecting research among capital structure, industrial organization and strategic management is an important research direction, which leads to focuses and prospects from both theoretical and applied perspectives. It is difficult to integrate capital structure decisions and production decisions into the model which reflects the interaction between the "real" (contrasting with monetary or nominal) characteristics of investment/production and capital structures. The breakthrough of this difficulty is depending on the role capital structure played in the "real" production decisions. Therefore, based on the function of capital structure in the process of realizing the companies' value and the existence of agency cost, the modeling method is used to study the optimal capital structure and its realizing conditions, which aims to maximize an enterprise's value.Theoretical research shows that the optimal objective of capital structure is maximizing an enterprise's value in the process of value creation and realization, which may be divided into four parts: strategic assets' investment, strategic action, gaining a competitive advantage and value realization. In the process of value creation, the strategic factors of capital structure decisions include: strategic assets, corporate strategies, competition strategy and external environment. Among them, the external environment (environmental factor) affects capital structure decisions by influencing the value creation and realization process. The definition of capital structure decisions is given as an initiative behavior with three characteristics: heterogeneity, initiative and dynamic, whose goal is to find the optimal capital structure to maximize enterprises' value. The function of capital structure decisions in the value creation and realization activities is fulfilled in two aspects: firstly, the reasonable capital structure can reduce financing cost of strategic assets; secondly, capital structure reduces agency costs, and competitive advantage can be transformed into economic profit and the value can be maximized. By introducing strategic assets, the factors which affect the value creation and realization process, capital structure decisions as well as the related environmental factors, the paper reveals the function of environmental factors in the process.There are conflicts between the shareholders and the managers, the creditors and the shareholders, which constrain an enterprise's value maximization. To realize the value maximization, two conditions is needed: first, achieve the potential value of strategic assets by cutting down the financing and governance costs; second, raise the amount of strategic investment. The graph analysis indicates that, on the one hand, debt financing can reduce the managers' perks and make them raise the amount of strategic investment; on the other hand, assets substitution effect makes the governance costs of debt financing raise along with asset specificity increases. According to the game model analysis on the small and medium-sized enterprises, designing the incentive mechanism is a precondition of reducing the strategic governance costs of debt financing and raising the amount of investment, which promotes the shareholders report the true cash flow to the creditors and encourages managers select the strategic assets, thus protects the profits of creditors and shareholders.Based on maximizing an enterprise's value as the target, stochastic linear program is presented with the process of investment, production and value realization as the foundation and under the dual constraint that the shareholders report the real operation condition to the creditors; the managers select the strategic assets. Numerical experiments show that the enterprises selected strategic assets make more profit than the ones invested in ordinary assets, which proves that investing in strategic assets is a precondition of obtaining the competition advantage, and the appropriate capital structure help achieve the potential value of strategic assets. In dealing with the problem of managers' perks and shareholders' deceiving behavior, constrain conditions are employed to punish those behaviors, which makes the program intuitive and easy solving. The results show that with the help of punishment mechanism, debt financing cannot only avoid the managers' perks, but also cut down the governance costs and urge managers to select the strategic assets; the punishment for managers' perks is a threshold, which means the minimum amount of punishment is able to prevent them from shirking their responsibility. It should be stated that an enterprise should set the minimum amount based on its particular conditions and the environmental factors, which is of great realistic significance for China's enterprises in imperfect capital market.For China's listed companies, a two-step adjustment strategy is presented on condition that industry mean of debt-asset ratio is not stationary. This method includes that firstly, make the industry mean the year before as the adjustment target, and then adjust again according to the industry mean's increment which depends on companies' features, industrial factors and macroeconomic conditions. In this paper, cross-section data models are used to test convergence of capital structure among China's listed companies. The results show that the convergence phenomena of capital structure in the same industry is obvious, which confirms the existence of the optimal capital structure and the feasibility of implementing the step-by-step adjustment policy. In the manufacturing industry, the unit root test is done for debt/asset mean by using NP and ADF test, which reveals that mean is not stationary. This proves that the two-step adjustment strategy is reasonable. Since it is not necessary to calculate the optimal capital structure for the implementation of the policy, the two-step adjustment strategy is low-cost and easy to do. It provides great significance for the enterprises' operation process.