Macroeconomic Conditions And Corporate Capital Structure

The firm is always in a macroeconomic environment, its capital structure is inevitably affected by some kind of macroeconomic shocks. This paper studies the effects of macroeconomic factors(such as business cycles,default risk,credit quota,stock market performance,entrepreneurial confidence and economic policy) on capital structure of chinese listed companies, using some novel econometric methods such as fractional logit model, quantile regression model, and difference-in-differences model. This paper finds that macroeconomic factors have importance influences on capital structure, there is not simple financing preference, and chinese firms have heterogeneous responses to economic policy change.First, this paper studies the relations between macroeconomic factors and capital structure. This paper studies the effects of macroeconomic factors on capital structure of chinese listed companies between 1994-2007, finding that business cycles and default risk have significantly influences on capital structre. Chinese corporate adjusted the capital structure counter-cyclically:when economy is prosperous, corporate leverage ratio decreases; when economic recession is coming, corporate leverage ratio increases. Credit default risk has significantly negatively influences on capital structure, this implies that credit market conditions restrict corporate adjusting behaviour. These empirical results show that chinese corporate financing behaviour are consistent with the pecking order theory but contradict with trade-off theory and market timing hypothesis. Using different group of sample and employing different econometric methods according to different kind of data character, thise paper finds the empirical results are robust.Second, this paper studies how the macroeconomic factors and entrepreneurial confidence affect corporate financing preference. The paper empolyes three-stage empirical strategy to study the problem, and finds that corporate financing preference varies with business cycles, when economy is prosperous, financing preference order is "internal financing-equity financing-debt financing", when economic recession is coming, financing preference order is "internal financing-debt financing-equity financing". Empirical results show that entrepreneurial confidence have significantly effect on corporate financing choices which are consistent with pecking order theory. These results are helpful in clarifying the financing preference controversy about chinese listed firms.Third, this paper constructs the "natural experiment" framework to identify the effects of capital market supply-side factors on corporate capital structure. Following the "natural experiment" approach, this paper uses difference-in-diffrences empirical strategy in testing the effects of credit policy shock on capital structure that ocurring in 1998 credit expansion and 2004 credit crunch. The paper finds that levrage ratios of firms those are small,private and less collateral (treament group) significantly increase relative to firms those are big,state-owned and more collateral (control group) since 1998 credit expansion; but firms in treament group significantly decrease leverage ratios relative to firms in control group since 2004 credit crunch. The results suggest that supply factors in capital market have important influences on capital structure, there exists lending channel effect in china economy, but different kinds of firms have different responses to credit supply shock. These findings have important policy implication on macroeconomic policy making and implementing, also help clarifying the public issues on 2004 Macro-regulation.