A Comparative Study On Influence Of Capital Structure To Performance Of Manufacturing And Real Estate

In recent years, China’s real estate industry have developed rapidly with housingprices climbing, while real estate industry have been promoted as a pillar industry in thedevelopment of the national economy once. However, the manufacturing industry hasbeen struggling in the swamp by comparison. Dilemma of the manufacturing and boom ofthe real estate has showed a strong contrast as lots of resources went from manufacturinginto real estate. Increasingly,"hollowing out" of the China’s economy is obvious.This paper planed to analyze and study the reasons why such a stark contrast existedin development of China’s manufacturing and real estate through the sight of corporatefinance. Based on MM theory, this article investigated and analyzed two key parameters,capital structure and corporate performance of China’s manufacturing and real estate (cap-ital structure presented by debt-to-assets ratio, corporate performance measured by returnon assets and return on equity). By investigating569manufacturing and89real estatelisted companies in China’s main board market, it was found that given performancemeasured by return on assets, manufacturing was a little higher than real estate, but ifmeasured by return on equity, real estate was obviously higher than manufacturing.Meanwhile, this study also discovered that the debt ratio, especially the long term debtratio of real estate was clearly higher than that of manufacturing, which indicated that themanufacturing enterprises operated better than the real estate ones. However, lower debtratio made the former obtain less profit than the latter, which was probably caused by realestate enterprises’ lower debt financing difficulty.By analyzing debt ratio and earnings rate of the manufacturing firms and the real es-tate ones respectively and studying this problem with capital structure theory, this paperfound that difficulty to finance for real estate firms was much smaller than that for themanufacturing ones, of which the reasons were various. One of the most important reasonwas the continuous high profit expectation of real estate, guided by government policy,which was one of the most important causes why real estate developed rapidly whilemanufacturing was trapped in a dilemma, and even real economy and virtual economydeveloped out of balance. It is pointed out in this paper that the concept that real economy is the base and premise to sustain the development of a country’s economy. The govern-ment should adjust allover developing policy of economy and industry, avoid wrong poli-cy due to wrong cognition, prevent wrong policy leading to wrong allocation of resources,and reduce imbalance of industries development and economic structure distortion, withwhich to promote the healthy development of real economy.