A Study On The Determinants Of Capital Structure Of Listed Companies In China

Capital structure theory is a focus and frontier in Modern Financial Economics and Financial Management areas. Researches on this problem have been lasted for more than forty years, since Modigliani and Miller put forward the famous MM-Irrelevant theory. Although scholars in economics in the western country have theoretically elaborated the determinants, which contribute to the formation of the optimal capital structures in companies, the results of empirical study are not completely consistent due to the economic complexity and peculiarity of economy in each country. So it is very important to make a study on the determinants that influence the capital structure of listed companies in China.Firstly, the paper introduces the theory of the capital structure, including the theory school of thought of capital structure and the determinants school of thought of capital structure. Then discusses the situation of the capital structure in the listed companies in China, and compares with the west developed countries, we conclude that the proportion of the capital coming from outer companies exceed greatly that of coming from inner companies; the companies prefer stock financing to debt financing strongly, the proportion of capital to debt is slow, the structure in debt is unreasonable and the level of the current liabilities is on the high level; the stock structure is special in the listed companies of our country. Then, combining the reality of our country, the paper analyzes and summarizes the macroscopic and microscopic factors, which influence the capital structure of the listed companies in our country. Finally, making an empirical study on the determinants of capital structure in our country. A capital structure model is specified based on theories of the capital structure and the situation of the capital structure in our country, using principal components and several factor linear regression analysis. The model incorporates cross-sectional and time-series data, i.e. a sample of 248 companies in Shenzhen stock market observed annually between 1999 and 2003, and makes an empirical study. In order to highlight the significant dynamic effect of the determinants, interactive time dummy variables are incorporated into the model. We find that leverage in Chinese companies increases with company size, financial difficult cost, profitability, cash flow, proportion of state and tax; have negative correlation with collateral value of asset and non-debt tax shield; and have no significant correlation with growth. More over, surplusmanagement has remarkable effect on the choice of the capital structure.