A Study On Determinants And Optimization Of Capital Structure Of Chinese Listed Companies

Since Modigliani and Miller published their seminal paper in 1958, the issue of capital structure has generated great interests among financial academics and practices. The MM supposes that a firm's capital structure is not correlated with its market value with the conditions that there are no trade cost, tax and information asymmetry. The MM theory just describes the ideal status. From then on, many scholars release some theoretical hypothesis of MM to meet the realities of business. And they find that there is nearly relationship between the capital structure and firm's market value. Empirical analyses of the determinants of firms' capital structure are also conducted.First, this paper introduces the theory of capital structure, from the tradition capital structure to the Market Timing Hypothesis. Then, combining the realities of our country and the conclusion of empirical researches from home and abroad, this paper analyzes and summarizes the inner and outer factors, which influence the capital structure of Chinese listed companies, mainly include company internal governance, law and policy environment, industry characteristics, macro-economic factors, company finance factors. Base on the analyses above, this paper selects several factors as independent variables, analyzes the determinants of real capital structure, optimal capital structure and the speed of adjustment, by designing static and dynamic models. This paper finds that company finance factors such as size, growth opportunities and profitability and company internal governance such as State-owned Shares Ratio have significant effects on the capital structure of Chinese listed companies. Macro-economic factors also have significant effects on the capital structure of Chinese listed companies, and most of these can be captured by real interest ratio, inflation ratio, and economic growth ratio. There is optimal capital structure for each company per year, and most of determinants that influence real capital structure can also influence optimal capital structure. Compared with optimal structure, Chinese listed companies greatly fall short of debt. Compared with developed country and transitional economy countries, the transaction costs from which Chinese adjust their capital structure are higher, and also influenced by innerand outer factors.Further more, this paper separately sets up one section to discuss the relationship between industry characteristics and the capital structure. This paper finds that there are significant differences between industries, and insignificant differences within industries. About 6.21% differences of capital structure can be explained by industry characteristics.Lastly, according to the theory and empirical analyses, this paper puts forward several policy advices for optimizing capital structure of Chinese listed companies.