A Study On The Nonlinear Relationship Between Company Performance And Capital Structure

The capital structure is always a hot research topic. Many scholars have carriedout extensive and in-depth study from multiple angles, but unfortunately they did notreach a unanimous conclusion especially on the relationship between capital structureand company performance. So the research on the relationship between them still hasgreat theoretical and practical significance. So based on this, we use panel thresholdregression model to do empirical analysis with balanced panel data consist of435manufacturing listed companies from Shanghai and Shenzhen stock exchanges in theperiod of2002-2011annual data. The research on the relationship between capitalstructure and company performance from the perspective of nonlinear provide a newway for future research on this problem.Firstly we have a review of the capital structure and corporate performancetheory both in domestic and abroad. Then we comb the existing literature from fourdifferent research directions and analysis the inadequacies of the existing literaturecombined with relevant theory of capital structure. Next we propose the non-linearrelationship between capital structure and company performance. In the empiricalanalysis we use panel threshold regression (PTR) model to examine the non-linearrelationship in which the capital structure and corporate performance are portrayedwith total debt ratio and Rate of Return on Common Stockholders’Equity (ROE). Theconclusions reached as follows:(1) Manufacturing listed companies’ performancechanges in "converse U" way with the debt ratio becoming higher. When debt is lessthan0.564, the company performance and debt ratio significantly correlated; in theinterval of (0.564<D≤0.710), there are no significant correlation between debt ratioand corporate performance; After the debt ratio is higher than0.710, the companyperformance is negatively related to the debt ratio significantly and the optimalproportion of debt is in the interval (0.564,0.710).(2) Manufacturing listedcompanies pay more attention to debt financing than before.(3) Companyperformance has significant negative correlation with share ratio of the largestshareholder. Company size, growth and profitability are positively related with company performance. But company performance has no significant correlation withassets structure.Based on the above research conclusion, we promote several enterprisesuggestions on optimizing the capital structure from several aspects such asgovernment, enterprises and the financial system. They have great significance for theimprovement of enterprise performance and economy in our country. Of course, thereare still many inadequacies in this paper. Finally we points out limitations of thisstudy and future research directions.