The Study On Determinants Of Capital Structure Of Chinese Listed Companies

Capital structure is the central issue in corporate financing decisions and the hot issue in finance. Capital structure affects the market value of company and is closely related to production, operation and profitability. Enterprises should consider all relevant factors and use appropriate methods to determine the optimal capital structure. Western academic research on capital structure has developed into a relatively mature theory for nearly half a century. But there is a quite different institutional environment between western countries and China. There are more developed and higher efficient capital markets, more perfect corporate governance structure as well as external legal regulation and policy in western countries than in China. Our country is a developing country in transition economy. Imperfect and lagging credit system and the legal system, immature security market, the uneven development of the capital market and imperfect investor protection mechanism make the capital structure of listed companies in China exist in a different mode of action compared with western countries. Furthermore, as split share structure reform from2004to2006has a great influence on capital market, it’s really necessary to study the factors affecting capital structure of listed companies and whether these factors’mode of action are the same before and after split share structure reform in China.The paper is structured as follows:the first chapter is the introduction, mainly introducing the research background, research significance, research contents, the innovation and limitation of the article. The second chapter is about the domestic and foreign research results related to factors on capital structure are summarized and listed from the perspective of macro economy and firm characteristics. The third chapter theoretically analyzes the factors of macro economy and firm characteristics on capital structure and proposes the assumption of factors of firm characteristics over capital structure. The fourth chapter is the research design, including the definition of variables and explanatory variables, sample selection and model design. The fifth chapter is the empirical analysis, using the model formed in the chapter three to test each hypothesis adopting data before and after the reform respectively. The sixth chapter is the research conclusion and suggestions, summarizing the conclusion of the research and putting forward corresponding suggestions according to the theoretical analysis and empirical results.The main contribution of the paper is to study the factors on Chinese listed companies’ capital structure using the data before and after the split share structure reform respectively. The paper compares the difference of the factors on Chinese listed companies’ capital structure before and after the split share structure reform and analyzes the reasons. It can not only guide Chinese listed companies to select and adjust the capital structure to achieve the optimal capital structure, but also provide empirical evidence of the effects of reform on corporate finance efficiency for the relevant state departments.Through the respective research based on the data from the year of2002to the year of2006and from the year of2007to the year of2011, we find that:(1) The debt percentage in capital structure is relatively low, the short-term debt percentage is high, and the ratio of long-term debt is low before the split share structure reform, while the debt percentage in capital structure has increased by a small margin and the ratio of long-term debt has continued to rise after the split share structure reform.(2) The size of company and collateral value of assets are positively associated with three indicators of capital structure and profitability and non-debt tax shield are negatively associated with three indicators of capital structure before and after the reform, which is consistent with the theoretical expectations. Earnings volatility are positively associated with the debt-to-asset ratio and the short-term debt percentage. But it’s not consistent with the theoretical expectations. Earnings volatility is irrelevant to the ratio of long-term debt.(3) The opportunities of growth are positively associated with the debt-to-asset ratio and the ratio of long-term debt. The opportunities of growth are positively associated with the short-term debt percentage before the reform, while they are irrelevant to the short-term debt percentage after the reform.(4) The concentration of ownership is irrelevant to the ratio of debt-to-asset and the short-term debt percentage. The concentration of ownership is negatively associated with the ratio of long-term debt before the reform, while it’s irrelevant to the long-term debt percentage after the reform.(5) The share proportion of management is irrelevant to the ratio of short-term and the long-term debt percentage. The share proportion of management is negatively associated with the ratio of debt-to-asset before the reform, while it’s irrelevant to the ratio of debt-to-asset after the reform.(6) The ratio of state-owned shares is negatively associated with the ratio of debt-to-asset and irrelevant to the ratio of short-term debt and the long-term debt percentage.Based on above conclusions, some suggestions are raised on the corporate level and institutional level, when determining the capital structure of the company, suggestions on the company level are as follows:It is necessary to take into account the macroeconomic environment and periodic characteristics It needs to take into account operational risks so as to diversify financing. It needs to consider the size of the company, the opportunities of growth, the collateral value of assets and profitability factors. It has to continue optimizing and improving the corporate governance structure. Suggestions on the institutional level are as follows:The state should improve the bankruptcy system and the "Bankruptcy Law." It needs to continue promoting the split share structure reform, focusing on capital market development and changes and to improve the relevant policies according to the situation in time.