Steel Companies Product Market Competition And Capital Structure Of Research: Based On The Economic Cycle

The capital structure and product market competition have been systematicallyanalyzed by researchers from various models and methods, however, theoreticalopinions still remain dissident and few of those research are empirical analysis. Theeffect of Economic cycle fluctuation towards product market competition of industriesin fact varies, enterprises, desire victory in competition by sensible capital structure,consequently should take the economic cycle fluctuation, industry environment andstrategies into account. This paper, therefore, focus on analysis of relationshipbetween capital structure and product market competition with the effect of economicfluctuation in steel industry.Literature review of the relationship between capital structure and productmarket competitions during economic cycle fluctuation are primarily summarizedfrom both domestic and overseas sections.The theoretical analysis on the relationship between capital structure and productmarket competition during economic cycle fluctuation is studied from three aspects:classification of industry periodicity, intensity of product market competition andcompetitive strategies of product market, respectively. Analysis results show that theproduct market competition is affected by the classification of industry periodicityduring economic cycle fluctuation; the intensity of product market competition andcompetitive strategies of product market both have a significant effect towards capitalstructure of each enterprise. Enterprises should flow the feature of industry periodicity,adjust competitive strategies based on intensity of their own product marketcompetition, thereby sensible capital structure could be made.The hypothesis of this paper is proposed based on the introduction of thesignificant intensity of periodicity, current developing situation and trend of steelindustry. A empirical analysis case study of dataset in iron and steel listed industryfrom2002to2012is implemented based on our hypothesis. The conclusion could be summarized as three aspects: there is a positive correlation between intensity ofproduct market competition and enterprises capital structure in domestic iron and steelindustry; capital structure of each enterprise has relative similarity and stability;enterprises capital structure is related to economic cycle, they adjust their capitalstructure according to the economic cycle, in other words, the higher the GDP growrate is, the better enterprises performance and profit will be. Those enterprises haveabundant floating capital, debt and the debt-to-asset ratio decrease.Moreover, a case study of Baosteel Co., Ltd analyzes its financial performance,operating conditions, competitive strategy, financing and capital structure. Theconclusion shows that capital structure of Baosteel Co., Ltd has an industrial feature;it is adjusted due to the economic cycle. It also adopted the relative conservativefinancial policies against other enterprise, therefore reduced the company’s financialrisk and operating risk, which is inseparable with perfect operation. This hasguaranteed the Baosteel Co., Ltd has ample money to implement the competitivestrategy, in order to obtain advantages in the competition.Final conclusion is given together with deficiency points and next step inresearch.