| Capital structure is an issue of substantial value to study, both theoretically and practically. It is important to study the impact of optimizing capital structure on the value of the company. Capital Structure is used to describe various capital resources and their ratios, Theoretically, the operation and management of listed Iron and Steel companies is appropriate for our study of capital structure, and listed companies are based on the capital market, so listed companies are chosen to study in this paper.Proper capital structure means great sense to our country: specifically, improving the capital structure is significant to increase the value of companies, to increase the efficiency of finance and operation; generally, it is helpful to reform the finance institutions, to set up and enhance the financial systems including company debt market, to convenience investment and financing activities of the society, allocate financing resources economically, and as a result to speed the long term economy increase.It is stated in the modern capital structure theory: in an efficient market, changes of capital structure will impact on the value of company; and capital structures of the companies in developed countries, which are based on a somewhat efficient market, has proved this theory. So it is inferred that capital structure is tightly related to the value of company.This paper is devoted to analyzing demonstratively, if the capital structure of a company does impact on its value, and verify foreign classic theories, and check the appropriateness in China of the theory: "The debt-equity ratio which has impact on company's performance is ranged between 0.23'-～0.45' ,which is backed by the majority of scholars. Debt-equity ratio is chosen to reflect the capital structure, and return of equity (ROE) is chosen to reflect the value of the listed companies. With years' data of the listed companies, the relationship of their capital structures and their values is analyzed both demonstratively and theoretically.By the demonstrative analysis and study of the current situations, conclusion is drawn in this paper: 1 .Great difference exists between domestic listed iron and steel companies' capital structures, and this reflects different operational environment they face and their various operational styles. 2. When the ratio of debt (?)ital to equity capital is appropriate, both the performances and values are satisfactory. 3. Capital structures of a big portion of iron and steel listed companies are not proper and this deteriorates their values. 4. Debt-equity ratios are relatively high for the domestic listed companies.The classic theories of capital structure and company value, together with practical domestic economy situations, give explanations both theoretically and practically.Theoretical explanation: by MM theory, debt financing gears the company and is tax-efficient; however, increasing debt pushes up costs of bankruptcy, so these two aspects form a positive range for capital structure when the debt-equity ratio varies. Within this range, debt capital matches well with equity capital, and the debt-equity ratio is appropriate. Operation with some debt not only brings the company the gearing effect, but also incentives the managers more, to make them perform more actively. When the off-set tax is equal to the cost of bankruptcy, the optimum capital structure point is reached, Masulis Ronald W. gives the range is between 0.23—0.45 from his study of mature market economy's data. Domestic listed companies have more capability to finance their equities than other companies, and are almost the modem companies in the way of financing, so classic theories of capital structure and company value can be used to analyze them, and proper range of debt-equity ratio should exist theoretically. This paper manages to prove the effectiveness of the range 0.23"--0.45 in domestic security market, demonstratively.Practical explanation: 1. In a long period, domestic companies raise their capital mainly from the hand of the country, and later a change called "distribute-borrow" is imposed, so borrowing is the only way to finance. This is one of the reasons of high debt-equity ratios. 2. Domestic security market was set up initially for the purpose of the reforms of stated-owned companies, and this quite erroneous positioning makes a lot of unqualified companies quoted on the security market after reformed. But in fact this does not improve their core management competence, except that these companies raise substantial equity capital after being quoted on the exchange market. Another impact of undeveloped security market is that the ways of raising capital are limited. This makes companies liable to borrow from banks conveniently, even when they have good performance. 3. Domestic bankruptcy laws are not sound, and it is usually not easy to execute these laws. So this unsoundness certainly leads to the failure of being risk-concerned. 4. Domestic listed companies' shareholders are peculiar in that state-owned shares and state-owned institutions' shares weigh too much. Weakest control over the ownership and strongest control over the operation lead to failures of supervising and incentives made to the managers, and make the companies "controlled by the insiders", company values being impaired as a result. 5. Developed and qualified manager market is absent, and systems to select managers are not sound, so effective pressure of competition on the managers is nowhere to be found. These are also important reasons that lead to agent-principle cost. 6. As a main approach for listed companies to raise capital outside, banks are with problems themselves, which also explains the inappropriate capital structure and low return.To solve these problems within capital structures and company values of domestic iron and steel listed companies, this paper gives following strategic advice both internally and externally: 1. Internal optimize capital structure and increase the company value. This includes setting up and optimizing managers' reward systems, improving efficiency of managing shareholdings, protecting benefits of creditors, enhancing tactics more flexible for the creditors. 2. Externally optimize capital structure and increase the company value. This includes speeding up economy laws, forming the market environment that restrains activities of raising capital for the listed companies, developing greatly company-debt security market, raising more capital through company-debt security, going further on the road of market stated-owned banks.Listed companies are outstanding domestically. To increase the competence of the economy in our country, it is of great importance to optimize capital structures of listed companies and increase company values. Based on the premise that domestic market economy is being sound and capital market is being mature, listed companies' capital structure strategy should be linked with operation management dynamically, and also with finance management, capital market and so on. The target capital structure should be in line with the long term development of the company, the way and scale of raising capital should be decided appropriately, to adjust and optimize the capital structure and decline the finance risk and the cost of capital, and as a result to increase the company value. |
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