Dynamic Adjustment Of Capital Structure Of Listed Companies In China Based On The Economic Institutional Background

Modern corporate finance theory shows that the choice of capital structure is animportant part of the corporate financial decision-making, it not only affects the costof capital but also have a relationship with corporate value, governance structure andmacroeconomic performance. As the business activities of company is a dynamicprocess, its target capital structure is also a dynamic adjustment process whichchanging over time in order to maximize enterprise value, but the actual capitalstructure and target capital structure have a deviation due to the presence ofadjustment costs in a specific time. The dynamic capital structure theory focuses onhow enterprises making adjustments when a deviation between the actual capitalstructure and target capital structure occurs. The study to dynamic capital structuretheory should not be constrained in adjustment costs as well as influencing factors,further factors should be considered, such as the characteristics of China’s marketeconomy, social systems background, market-oriented reform process, as well as ourregional economic structure characteristics.This paper examines how the institutional background affects the adjustment ofcapital structure of listed companies in China in the view of macroeconomic,financing constraints, product market competition and the market process byconstructing the partial adjustment model of capital structure and using comparativeanalysis and empirical analysis in decades. The empirical results show that:(1) A higher level of asset-liability ratio has a relatively fast speed of adjustment,that means more lower trade cost, while relative to the common debt level,thecorporate with higher asset-liability ratio have more large scale.Due to the lowproportion of possession of tangible assets in the company with high debt ratio, andthe national credit rationing policy has a significant level on the company with highdebt ratio,this suggest that the company with high level of indebtedness can adjust itscapital structure through debt behavior.(2) Financial constraint and product competition have a significant negativecorrelation with the firms’ target capital structure, and the degree of financialconstraint can also affect the capital structure adjustment speed. At the same time, wefound that as product market competition becoming more and more intense, the actualcapital structure of enterprises which with the lower level of financing constraints has smaller deviation from the target capital structure.While, when the degree of financialconstraint after a certain point, as product market competition becoming more andmore intense, the actual capital structure has bigger deviation from the target capitalstructure, and the more seriously, the more significant.(3) The speed of capital structure adjustment are significant differences amongregions, and the capital structure in all regions show lower liabilities when comparedwith the optimal capital structure of the model predictions. Further study find that thenon-parametric test results show that the market process between different regionsare significant differences when using marketization as quantitative indicators ofregional differences. In addition, the study shows that the higher the degree ofmarketization, the faster speed of adjustment of the corporate capital structure, whichmeans the lower transaction costs. And the higher the degree of marketization, thelower deviation between actual capital structure and the target capital structure.The improvement and innovation of this paper is mainly reflected in thefollowing aspects. First, this paper combines dynamic adjustment of capital structuretheory with the characteristics of China’s economic and the institutional backgroundwhich related the theory of industrial organization, regional economics anddisciplines such as financing constraints, product market competition, the marketprocess, as well as regional differences. Second, from the interdisciplinary point ofview, this paper combines the theory of corporate finance, industrial organizationtheory, regional economic theory,corporate strategy theory and other disciplines, itis an interdisciplinary research, in the integration of subject knowledge,this paperalso make a certain contribution.