The Empirical Study On Influence Between Equity Structure And Capital Structure Of Chinese Listed Companies

Modern capital structure theory began with MM theory,which was proposed by Modigliani and Miller in 1958. on this basis, in 1976, Jensen and Meckling put forward that as the company's shares are saled to outside investors, corporate ownership and control will be separated, so that manager may have possibilities to reduce the effort or increase personal consumption to violate interests of external shareholders, resulting in the company's equity agency costs.Therefore, in the academic field of study,analysing the proportion and composition of outside shareholders ownership and insider ownership as the core content of the ownership structure's affection to the capital structure has became a hot academic discussion.However,in our country, the study of capital structure began in the 20th century,90 years. Later, China'enterprises enter the stage of financial reform:The development of capital market provided listed companies with a more diversified range of financing choices, so the enterprises have more financial autonomy. Recalling the development of capital markets history, the number of listed companies has been growing, financing amounts are becoming ever larger. However, test of the success of the standard reform is not the number or size of listed companies, but whether the company's behavior truly meet the requirements of modern enterprise system, especially corporate finance behavior. Also, consider the transition of China's particular economic environment, Do the enterprises have right to self-financing? Whether the enterprise act as market players to make rational capital structure decision? what kind of role do the various parts of the capital structure of listed companies play when it comes to capital structure decision? those questions are worth serious consideration and study,especially in such special economic context in our country.Speaking of this paper's train of thought, firstly,this paper review and sort out the theory of capital structure and equity structure governance, combined with analysis of capital structure and equity structure of china, and use standardized analysis and empirical analysis to study Listed Companies Ownership'impact on Capital Structure.As noted above,in foreign countries,ownership structure and capital structure theory have a rich research results, but there is a special ownership structure of China, for example,the dominance of state-owned shares and high concentration. In China,study about relationship between the equity structure and capital structure is rare, therefore, this paper attempts to do empirical research on listed companies equity structure's impact on capital structure under specific national conditions in China.Contents of this paper are constituted by the introduction and main body.chapter 1 is an introduction to the main issue of this paper,including background, meaning, general research framework and methodology,and the main body include:Chapter 2 mainly review capital structure theory and literature, modern capital structure theory was formed in the 20th century 50 years, with MM theory as the base, which focused on relationship between enterprise value and capital structure, then develop to stage of asymmetric information,stage of interaction between capital structure and product market,stage of control theory and stage of behavioral finance. these theories analyse relationship between the capital structure and corporate value from different perspectives. There are also empirical studies of factors, which will affect capital structure,and aimed at looking for general theory of financing decision-making to explain reality and guide enterprises.Jesen and Meckling (1976) think that the separation of ownership and control can enable managers search personal interest at the expense of company's resources to reduce the company shareholder's interest. However, the agency problem can be weaken by internal and external constraints to reduce manager's freedom. In particular, the incentives faced by manager will affected by debt, managers' share and major shareholders. Because of different ownership structure, different role playing in corporate governance enterprise will choose different priority order while financing, thus affecting the capital structure of debt and equity capital. Therefore, the corporate ownership structure has impact on the choice of capital structure,and chapter4 will study the relationship between ownership structure and capital structure from this point of view.Chapter 3 analyze the characteristics of China's actual capital structure. Since reform and opening up, China's corporate finance system had made great progress,the banking enterprise funds replaced the supply of finance to become the main channel, as well as the capital market developed rapidly. Although China's financial system has basically formed a diversified and competitive investment and financing system, but still far from the full realization of market-oriented and efficiency, there are still many problems. Compared with the western developed countries, China's listed company's capital structure have the following problems: Firstly, corporate financing is unreasonable prefer to equity financing seriously. The current characteristic of financing performance of Chinese enterprises is "three high,three low",contrary to the United Kingdom, Germany and Japan and other Western developed countries. Secondly, the low rate of corporate assets and liabilities and instability. direct reasons are inefficient business,weak budget constraints among bank enterprises, as well as equity financing cost is lower than the cost of debt financing. System root was due to the enterprise property right system and the financial system and capital markets' lagging deficiencies. So,as a product of institutional change,equity structure have an important impact on capital structure.Chapter 4 mainly discusses the relationship between ownership structure and capital structure. Shareholding structure is the distribution and matching methods of enterprise residual control and residual claims, and their effective correspondence is the key to efficient operation of the enterprise, so ownership structure has an important impact on corporate governance. Ownership structure can be divided into two meanings:Firstly, stock concentration; secondly, the composition of different ownership,such as the State shareholders, corporate shareholders and the public shareholders and other stake. Domestic and foreign scholars have carried many study about the ownership structure's role in corporate governance and it's efficiency. However, they did not achieve consensus. Because the different ownership structure, different holding role may have different consideration, thus affecting the capital structure decision-making. This chapter will sum up these different theoretical and empirical conclusions.In addition, against domestic study did not see institutional investors as a separate variable, while foreign research have taken consideration to it already, this article also put institutional investors into tthe scope of discussion.Chapter 5 mainly discuss comparative study between Foreign and domestic 's Ownership Structure and Governance effect. Firstly, discusses the two typical equity structure model,they are U.S. and Japanese. United States have Dispersed ownership,main investors are individual and institutional investors.Japan is manifested in Concentrated Stock, main share holding approaches are bank and cross-corporate-shareholdings. those characteristics determine the effect of different governance, the United States have well-developed capital markets,more sound legal system, market for corporate control, but manager prone to build his empire and conduct short-term business activities. In Japan bank has played a leading role in corporate governance,cross-corporate-shareholding also contribute to company stability, long-term development, but because there is no well-developed securities markets or active control market, transparency is low,inner controlling problem is serious, and such equity structure prone to result in bubble economy. However, according to the above trend analysis, there is a convergence trend between two models.China's ownership structure is different from these two countries. The performance of previously split share structure brought about different stake have different right, state-owned stocks is dominant,and stocks are highly concentrated. Speaking of effects of governance, the lack of external control over the market, corporate governance inefficiency and inner controlling problems are serious.Chapter 6 design and empirically research ownership structure of listed companies'impact on capital structure, study use chinese listed companies' ownership structure data and financial data from 2003 to 2008, empirically test ownership structure of listed companies'impaceton capital structure, and the sample is divided into state-owned and non-state samples and do a comparative analysis between two samples.in order to completely describe the equity structure, the equity structure is divided into four categories and 8 indicators, including state-owned shares, corporate-owned shares, managers-own shares, institutional investors and floating shares excepting institutional, the top one and top ten holdings of shareholders and Degree of equity of checks and balances, and set the value of asset-backed, firm size, non-debt tax shield, profitability and growth as control variables for empirical analysis, and finally draw some meaningful conclusions.Chapter 7,Policy recommendations, primarily through the previous theoretical analysis and empirical test, try to give some suggestions to equity structure and the capital markets,which determine capital structure to some degree.The main innovations of this article is give consideration to reform of non-tradable shares and development of institutional investor,and take them into discussion and do some tentative study.