The Study Of Correlation Between Chinese Listed Companies' Equity Structure And Capital Structure

This article studies and discusses the influence of Chinese listed companies' equity structure on capital structure, on the basis of the generalization and assimilation of the relevant research findings obtained in foreign countries as well as by combining them with actual background of financing system in China, utilizing a combined method of both micro-analysis and macro-analysis as well as normative analysis and positive analysis. The research indicates that the trait of the unique Chinese equity structure is originated from the institutional factors, which further influences on the decision-making for capital structure. The negative correlation between management shareholding proportion and listed companies' capital structure is not very remarkable because of the commonly low holding proportion of management shareholding in listed companies resulting in the fact that the incentive produced by equity serves little purpose to management and capital structure as well as there exists the problem of "insider control" in listed companies. hence the correlation between the management's holding proportion and the listed company's liability ratio is negative but not obvious. Namely the higher the management's shareholding ratio is, the lower the company's liability ratio will be, the lower the management's shareholding ratio is, the higher the company's liability ratio will be.The state-owned shares in the categories of non-tradable shares don't play an active role of supervisor in the corporate governing structure. So it is hard to exert an effective supervision and restriction on managers. Consequently the proportion of non-tradable share in state-owned holding enterprises is positively correlated with corporate capital structure. Namely the higher the non-tradable share proportion of non stately owned company is, the higher the company's liability ratio will be, the lower the non stately owned company's non tradable share proportion is, the lower the company's liability ratio will be..While the corporate share in the categories of non-tradable shares has the ability to encourage and supervise as well as restrict managers. Hence it plays an important role in corporate governing structure. The proportion of non-tradable share in non-stately-owned holding enterprises is positively correlated with the corporate capital structure.Namely the higher the tradable share proportion of stately owned company is, the higher the company's liability ratio will be, the lower the stately owned company's tradable share proportion is, the lower the company's liability ratio will be. With regard to state-owned holding enterprises, among shareholders of tradable share which are mainly consist of minor shareholders, it exist the phenomenon of "hitchhiking behavior". Therefore the supervising function of equity owners is weakened and also fosters the overinvestment propensity of managers. As a result the proportion of tradable share in state-owned holding enterprises is positively correlated with corporate capital structure.With respect to the non-stately owned holding enterprises, the proportion of tradable share in non-stately owned holding companies bears negative correlation with corporate capital structure, due to the fact that the shareholders of tradable share can not supervise the manager which results in the willingness of managers to reduce the liability ratio in order to evade the risk. Hence the non stately owned company's tradable share proportion is negatively correlated to company's liability ratio, namely the higher the non stately owned company's tradable share proportion is, the lower the company's liability ratio will be, the lower the non stately owned company's tradable share proportion is, the higher the company's liability ratio will be. Under the overly concentrated equity structure of Chinese listed companies, more too often the major shareholders complot with managers to encroach on the benefit of external middle and small shareholders. Therefore the degree of equity concentration in listed companies is negatively correlated with liability ratio. Namely the higher the equity concentration ratio is, the lower the company's liability ratio will be.Because every scattered shareholder is reluctant to supervise managers out of the motivation of "hitchhiking", this makes the company managers be the actual controller of companies. In consequence the decentralization degree of equity in listed companies is negatively correlated with liability ratio. The allied governing structure by a few major shareholders can constrain the behavior of the biggest shareholder and further carries out an effective supervision on management. Consequently the agent cost is reduced. Therefore the difference between the shareholding proportion of the biggest shareholder and the three other major shareholders is negatively correlated with liability ratio.namely, the larger the difference between the biggest shareholder's holding ratio and the other three major shareholder's holding ratio is, the lower the company's liability ratio will be, and vice versa Moreover, the capital structure of Chinese listed companies is also influenced by the collateral value of assets, enterprise size, the non-debt tax shield, as well as enterprise performance and growth potential.