Research On The Relationship Between Capital Structure And Firm Value Of Listed Companies

In modern enterprises’financing activities, different ways of financing will bring different capital structure, a reasonable capital structure will help standardize enterprises’behavior and improve firm value. Therefore, capital structure is always being popular hotspots of financial theory and practice. Although Western scholars have been studying deeply on capital structure theory, the results are not entirely consistent when researching from different aspects. Research on the relationship between capital structure and firm value can be the basis for listed companies’financing and be the guidance for rational financial decisions, which in turn will help financial management better playing its important role in modern enterprises’management mechanisms.This paper studies the relationship between capital structure and firm value from the aspect of risks and benefits. First of all, it introduces the concept and characteristics of risks, and then analyzes the relationship between risks and benefits, which builds a theoretical framework for capital structure. After that, it studies the relationship between capital structure and firm value from matching risks and benefits, it shows that without corporate income tax, the firm’s weighted average cost of capital will not change with changes in capital structure, that is to say, firm value has no relationship with its capital structure. When corporate income tax exists, debt financing will gain tax-saving benefits and increase business cash flow, the weighted average cost of capital will decrease as asset-liability ratio increases, at the same time, the firm value will increase as asset-liability ratio increases. This paper also analyses why the rate of assets and liabilities cannot reach one hundred percent in practice. Finally, from an empirical point of view, this paper uses linear regression analysis to verify the relationship between capital structure and firm value, and finds out that optimal capital structure exists in the enterprises.Based on the theoretical and empirical analysis of the relationship between capital structure and firm value, after considering the problems of listed companies’capital structure, this paper proposes that listed companies should increase their asset-liability ratio and reduce the state-owned share proportion, take the characteristics of industries’risks and benefits into account when considering the capital structure and make great efforts to improve financing environment.