Rsearch On Capital Structure Of Listed Coperation Based On Dynamic Adjustment Model

Capital structure is the proportion relation of different kinds of capital of corporation generalized and the proportion between debt and equity in narrow sense. Capital structure is not only the theory basement of modern finance but also the key problem of financial decision and corporate governance. In the present, trade-off theory, pecking order theory and market timing theory are wildly studied as main theory of capital·structure. Trade-off theory argued that firms do have target capital structure by trading off their costs and benefits of leverage. Pecking order theory argued that firms prefer inside capital to outside to meet the demand of capital. Market timing theory believed that firms try to issue equity when the stock price is high and vice visa. In fact, according to many papers, the three theories all have some explain power to capital structure of firms. What we should do is to consider these theories together. The meaning of this paper is that adding pecking order and market timing variables to dynamical model of capital structure which are ignored by many dynamical adjustment model. In the mean time, as to the adjust speed, we set different adjusting direction, finance condition and market condition.This paper uses the data of 481 non-financial listed firms from 1998 to 2006 and chooses book and market debt ratio as explained variables and well known firm character variables as explain variables. We compare normal OLS model with dynamic adjustment model. We also consider the fixed effects to the panel model. Then, we add pecking order and market timing variables to the model. After that, we use the target capital structure to test whether the adjust direction influent the adjusting speed. Finally, we add finance, market timing and product uniqueness dummy variables to the adjusting-direction model.Empirical results of this paper shows that the listed firms in china do have target capital structure and the adjustment speed is 39%(book debt ratio) and 53%(market debt ratio),which shows the speed is not slow. Pecking order and market timing variables adding to the model do not change the adjustment speed significantly. This shows that dynamic adjustment effect has more explanation power than pecking order and market timing theory to Chinese data. Beside that, different conditions induce different adjusting speed. We find that downward adjusting speed is higher than upward adjusting speed which reflects that china listed firms has the tendency of stockpiling debt capacity. The explain power of dynamic adjustment theory is still the most powerful one in spite of different finance, market and product uniqueness condition. In the comparison of dynamic adjustment theory, pecking order theory and market timing theory, the first theory is the winner. In fact, pecking order theory and market timing theory could also be seemed as generalized adjustment theory. Therefore, choosing capital structure should be a dynamic progress and more factors should be considered in future research.