| Cyclical industries play an important role in national economy and are characteristic of more significant fluctuations.Hence the sustained and stable development of cyclical industries has important significance for the national economy.Many of the cyclical industries are confronted with some serious problems such as surplus production capacity and low economic efficiency.Under such circumstance,the solution of how to promote the healthy development of cyclical industries has turned into a very important topic for both the national administrative bureau and enterprise managers and investors.Some people summarized their understanding on the characteristics and financial management strategies of cyclical industries based on empiricism.However there is little literature on empirical research of cyclical industries from the perspective of the enterprises' empirical data.This paper attempts to make up for gaps in this respect and examines the effect of macroeconomic factors and industry cyclical characteristics on operating leverage,financial leverage,and profitability of the enterprises,and the effect of operating leverage and financial leverage on profitability of cyclical industries under the influence of business cycle.The development of cyclical industries is deeply influenced by macroeconomic cycle and industry cycle;hence the operation of cyclical industries has great uncertainty and complexity.As a result,the economic performance of cyclical industries exhibit strong risk and volatility.Based on the relevant theoretical foundation,and summarization and innovation of existing research results,this paper combines macroeconomic data and the industry variables with micro enterprise data,investigates the influence of macroeconomic factors,industry factors and the extent of leverage in corporate financial strategy on the performance of listed companies.This paper selected China's A-share listed companies as research objectives,and obtained 19020 pieces of observation data from 2176 companies between 2000-2014.The research focuses on the perspective of operating leverage,financial leverage,and profitability and examines the financial features of cyclical industries in comparison with defensive industries.Based on the results of empirical research,we draw the following conclusions:(1)The operating leverage and financial leverage of cyclical industries are both significantly higher than those of the defense industries,and the operating leverage and financial leverage exhibit greater volatility.Enterprises in different stages of the business cycle will correspondingly adjust the assets structure and capital structure of the enterprise in order to take full advantage of the effect of leverage.The extent of adjustment in the cyclical industries is comparatively significant.It proves that the timing behavior in the financial strategy management is adopted by enterprise managers in China.(2)On the respect of profitability characteristics,we find that the volatility of cyclical industries is greater than the defensive industries.The profit margin in the expansion stage of the business cycle is higher than the profit margin in the contraction stage of business cycle,and the rate of profit margin growth in the expansion stage of the business cycle is higher than that in the contraction stage of the business cycle.By group-testing the profitabilityindicators and profitability growth rate,we find that the cyclical industries are more sensitive to the impact of the business cycle fluctuation on enterprises' profitability compared to defensive industries.More specifically,we find that cyclical industries exhibit comparative advantage with respect to defensive industries in the expansion stage of business cycle,while comparative disadvantage is indicated in the contraction stage of business cycle.It suggests that macroeconomic factors are important driving factors of profitability volatility of cyclical industries.On the regards with the influence of the leverage characteristics of cyclical industries on the profitability of enterprises,we draw on the data of mining industry as the representative of cyclical industries.Research results show that in the period of economic expansion,improvement of operating leverage and financial leverage will lead to positive change of profitability growth rate;in the period of economic contraction,improvement of operating leverage and financial leverage will result in negative changes of profitability growth rate.The results verify the double-edged sword effect of operating leverage and financial leverage.How leverage influences the enterprises' profit is closely related with the direction of the company's future earnings.When the company is expected to have a positive profit in the future,the operating leverage and financial leverage will play a positive role.Under such circumstance,the higher the extent of the leverage,the more earnings it will bring to the shareholders.On the contrary,when the company is expected to have losses in the future,the operating leverage and financial leverage will play a negative effect.At this point the higher the degree of the leverage,the more loss it will bring to the shareholders.In order to make up the deficiency of the data from a single industry,we supplement the research on cyclical industries with a case analysis.The case analysis based on China COSCO Shipping Corporation also confirms that the leverage could magnify the profitability--in optimistic economic environment when enterprises usually maintain profits,it will help promote the corporation's profit;in depressed economic environment when it is hard to make earnings,it shows negative effect to corporation's profit.Although the hypothesis is only tested by data from one of cyclical industries,it does not mean that other industries or non-cyclical industries do not have a similar situation.It could be suggested that the test based on cyclical industries turns out to be more significant,which produces a clearer conclusion.But it is a fact that the function of leverage is indeed more significant in the industries where cyclical fluctuation is stronger.The characteristics of high leverage and profit volatility determine that in this kind of enterprise leverage will produce greater amplification effect.Besides,due to the huge scale of investment in fixed assets and the lag effect of fixed assets adjustment,it becomes particularly necessary for cyclical industries to predict the market situation in advance and make the future investment plan according to market demand.If an enterprise is in a cyclical industry,the management of the enterprise should pay special attention to the trend of the economic environment and adjust their investment and finance strategy accordingly.The management of the enterprise mustconsider both macroeconomic environment and the development opportunity of the industry in making the corporation's financial strategy.The key principle is to reasonably arrange assets structure and capital structure,and more specifically,to strengthen fixed assets investment and debt financing to utilize the positive effect of leverage in favorable opportunity;to avoid adverse effects caused by the high leverage in unfavorable circumstance.When the industry inflection point is about to come,the management need to make pre judgment in advance and make full reserve for the upcoming changes.To make the conclusion: a corporation should be particularly cautious in the peak of the industry and particularly aggressive at the bottom of the industry,so as to make full use of the effect of leverage. |
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