Owner's Equity Constitution's Impact On Capital Constitution

Marx's ideology on the capital structure is based on the residual value. According to its various functions manifested by the different parts of the capital during the process of production of surplus value, capital is divided into several structures. Ranging from production, circulation to allocation, from individual capital to social gross capital, Marx's capital structure analyzes the production, accumulation and distribution of residual value. And the Western theory of capital structure, which belongs to the basic structure of corporate finance and financial decision-making theory, is more concerned about the micro-level, belonging to the enterprise (company) capital structure theory. Marx's capital structure theory examines not only the production process, but also the flow and distribution process, and studies not only individual capital movement, but also the movement of social gross capital. In this sense, Marx's capital structure theory is both a general and a fundamental theory concerning capital structure. Social capital structure provides the essential conditions and circumstances for the existence of enterprise (company) capital structure and determines and plays an influence on the company's capital structure. Marx's capital structure theory, in terms of methodology, or in terms of the content, is still an important guide for the research on enterprise (company) capital structure.The landmark of modern capital structure theory is Cost of Capital, Corporate Finance and Investment Theory (Modigliani & Miller: 1958) published in American Economic Review. Modigliani & Miller (MM) theorem is a sequence of conclusions: in an ideal market assumption, the enterprise value has nothing to do with the company's financial decision-making. This theory is built on a series of papers by Modigliani and Miller in 1958, which is quoted when Franco Modigliani and Merton Miller Nobel were awarded Nobel Prize in Economics. Although the importance of company's financial decision-making is widely acknowledged, MM theory is still the modern theory of corporate finance at the core. From the beginning of the 1970s, researchers put a very important part of the focus on the agency-cost-determined capital structure model, which is the cost brought about by a conflict of interest. Jason and McLean and defines two types of conflicts. The conflict between shareholders and the operators originate from the fact that the operators do not fully control the remainder of their rights so that they can not gain 100% profits from the profitable acts and pay for the cost of all these acts. For example, operators can manage resources on less effort, and enterprise resource can be translated into their own interests, such as through the enjoyment of "special treatment", like corporate aircraft, luxury office and the construction of the "personal palace". Operators burden all the costs aiming to restrain these acts, only to share a small slice of the benefits. As a result, operators begin to pursue the luxuries which are in accordance with the maximize value of the company. The greater proportion of shares the operators control, the less the low-efficiency will be. If the proportion of operators absolute investments are kept unchangeable and the company increases the proportion of bond financing, the proportion of shares held by operators will be increased along with the decrease of the losses caused by the conflict between operators and shareholders. In addition, as is proposed by Johnson in 1986, the bonds need to be paid in cash, reducing the amount of the"free"money that the operators would spend in luxurious pursuits. The advantage of Bond financing is to ease the conflicts between operators and shareholders.The conflicts between the creditors and shareholders are generated by that the contractual obligation guides shareholders into a second-best investment decision-making. Particularly according to the debt contract, if the investment was much higher than bonds with a face value of the huge gains, shareholders will receive most of the profits. And if the investment failed, the creditor will bear the responsibility because of the limited liability. As a result, shareholders may benefit from "going bankrupt" (that is, to invest on very risky projects even if they are in depreciation). Such investment leads to depreciation of bonds. The stock value losses caused by poor investment are larger than the benefits brought about by creditors'losses. When the bonds are issued, not creditors but shareholders will shoulder the losses if the creditors have expected the shareholders'future actions. In this case, the shareholders'benefits from the bonds will be less. This is generated by the bonds, and impairment of investment in the project cost will be an incentive to issue bonds of their shareholders. This effect known as "asset substitution effect" is an agent of debt financing costs.Meckling and Jensen pointed out that the optimal capital structure by the agency cost of debt is equal to the previously mentioned debt to income received. This idea is followed by a number of conclusions: First, it is hoped that the bond contract package could prevent the issue of alternative assets, such as the need to pay interest and to prohibit the new, unrelated to the investment industry, and so on. Second, other things being equal, the industries with the more limited opportunities for the occurrence of alternative assets will have a higher level of public debt. For example, the theory predicts regulated public utilities, banks, as well as opportunities for the development of less mature industry will have higher levels of debt. Third, slow growth or even negative growth in the company, as well as the best course of the operation will bring a large number of Cash Inflow companies that should have more debt. Large Cash Inflow and dim prospects for investment result in consumer special treatment, the construction of the "personal palace", over-payment of their subordinates. Debt increase reduces the amount of "free cash", while increasing the remaining ownership interest in proportion. According to Johnson's discussion (1989), the characteristics mentioned above are clearly manifested in the steel industry, chemical, brewing, tobacco, television and radio broadcasting, timber industry and other paper products. These theories predict that the industry is characterized by a high debt ratio. Since then, share ownership structure based on external and internal ownership of shareholders constitutes the core content of the influence of shareholding structure on the capital structure has become a hot topic in the academic circle. As far as the domestic current research is concerned, many scholars center on the ownership structure and the relationship between share ownership and corporate performances and hardly discuss the shareholding structure's impacts on the capital structure. How do Equity structures of Chinese listed companies affect the capital structure? This article will focus on equity, national ownership, corporate ownership, management ownership, the proportion of shares to the public as independent variables into the analysis and try to explore something new in this area. This paper contains six sections.SectionⅠis preface. Section II is literature review on the theories and current researches. Section III is to discuss the characteristics of capital structure and ownership structure of Chinese 1isted companies. SectionⅣis an empirical case study with thoroughly analysis. SectionⅤgives the capital structure model based on MATLAB. Concluding remarks and suggestions for future research are presented in the sectionⅥ.Section I is to briefly introduce the research backgrounds, research targets, its significance, methodology and the origination of the whole article.SectionⅡis the literature review on capital structure theories and relevant remarks. And the brief introduction on the variables concerning capital structure and shareholding structure will be concluded in this section. Besides, this section will contain a literature review on the achievements of the current research on the shareholding structure's impacts on the capital structure. In general, there is no a acknowledged consensus in academic circle, which is the motive of my thesis.SectionⅢis to describe the characteristics of ownership structure of current Chinese 1isted company.SectionⅣis aimed at discussing the research design and the regression results.In this section,the author brings forward six hypotheses will be put forward and the definition of dependent variables will be given. The six hypotheses are listed as follows:(1)Concentration ratio is positively associated with owners'equity levels.(2)STATE ratio is positively correlated with owners'equity 1evels. (3)Stock-held-by-institution in domestic ratio is negatively associated with owners'equity 1evels.(4) Stock-held-by-foreign institution ratio is negatively associated with owners'equity 1evels.(5)Stock—held-by-out ratio is negatively correlated with owners'equity levels.(6)Stock-held-by-manager ratio is positively correlated with owners'equity 1evels.The dependent variable is capital structure.Ownership structure is independent variable.As ownership structure is not the unique determinant of capital structure,this paper introduces four control-variables in all regression equations.This section shows the regression results and presents theoretical analyses. SectionⅤshows the nonlinear regression results.SectionⅥconcludes this paper and remarks me future research.