Capital Structure And Firm Value

The pursuit of maximize the wealth is always the driving force of the business owners, so about the researches of enterprise value are enduring thousands of years. Then what is enterprise value? The concept of enterprise value is very comprehensive and its meaning is very rich. It should reflect the level of profitability about past, present and future. Because of the limitations of the research environment, most scholars are generally analysis the firm value from the quantitative point of view of financial data. So the enterprise value is the discounted value of future cash flow. Most foreign scholars are using Tobin’s Q, EVA, EPS and other indexes to measure the firm value, but the capital market environment of our country are significant different with the western countries, our market system is not perfect, so the indicators above-mentioned are not suitable to our country. According to many authoritative scholars at home and abroad, this paper is planning to use ROE to measure the enterprise value. The indicator of ROE has many advantages, such as:representative, suitable, comprehensive, versatile and so on. As well as we know, the capital structure is the main factor to effect the firm value and is also the basis of the modern corporate financial theory. Therefore about the research of the relationship between capital structure and corporate value is very necessary. Capital structure refers to its composition and the proposition, influences and determines the firm governance structure. Because of China’s capital structure system, market economic system and corresponding laws are not perfect, so in this context study the theory of capital structure has a strong theoretical significance and practical significance. This thesis uses the asset-liability ratio to measure the capital structure.About the relationship between capital structure and corporate value, has been a hot topic in theoretical circles and does not have a fixed argument, different people have different views. But academics generally believe that the capital structure has industry characteristics, so domestic scholars consider the relationship between capital structure and firm value from studying of all listed companies to a particular industry recently. But I found the article of studying the electricity gas and water production and supply industry is few, maybe this industry compared to the other industries is special and its results may not be universal or representative. Well, the electricity gas and water production and supply industry is China’s pillar industry, which plays an important role in the development of the national economy and in relation to the production and living. It has some typical characteristics:fundamental industry and deserves to focus, Capital-intensive industry, high rates of asset-liability and so on. So I decide to study the relationship between capital structure and the enterprise value of the electricity gas and water production and supply industry for improving our capital structure theoretical system.In the context of the development of domestic economy and the recovery of the international economy, the electricity gas and water production and supply industry are experiencing new opportunities and challenges, so we should catch this opportunity to improve the capital structure and maximize the firm value of this industry. The frames of this paper are as follows:first, detailed description of the capital structure theories and firm value theories; then, analysis the financial data of listed companies of electricity gas and water production and supply industry; last, use the Excel and Eviews6.0to establish a fixed effect model for61listed companies in2006-2010to get regression results. We draw to the following conclusions:the ratio of state-owned shares and corporate value is positively correlated; the share-ratio of the largest shareholder and firm value is negatively correlated; the relationship between asset-liability ratio and enterprise value is negatively correlated; the long-term debt ratio and enterprise value is negatively correlated; the control variables (size of the company, the growth rate of main business) is positively related with corporate value. For establishing a rational capital structure, we put forward some suggestions:reduction of the stated-owned shares cautiously; develop the institutional investors actively; improve information disclosure system and capital market; determine the reasonable range of liabilities; pay attention to the role of human capital.This article uses the following three methods:combing theoretical research and empirical research; using comparative analysis method; applying descriptive statistics analyze, correlation analyze, regression analyze. Through these methods, we could find the suitable capital structure of the industry.The main innovations:choose the listed companies of the utility industry as the samples; select the dates from2006to2010and much longer than before; apply panel data to regression analyze. While the limitations of this article:we only consider the listed companies, the non-listed companies are not take into consideration; assume the linear relationship between capital structure and enterprise value, but the actual situation is far more complicated than we thought; only use the financial data to analysis. So in order to seek more suitable capital structure and improve the whole benefit of the firm, we should strength the reform of the capital structure market, diversify the financing ways. At last, achieve the allocation of resources rationally, maximize the firm value efficiently, ultimately to promote economic growth.