The Study Of The Influence Of Capital Structure On Corporate Performance Of Listed Corporation

Capital structure theory plays an important role in the corporate finance theory, and the study of capital structure has also been the focus of concern of the academia. Since Modigliani and Miller put forward the MM theory at "The cost of capital, corporate finance and investment theory" in1958, the academic study of capital structure turned into a new stage, modern capital structure theory research. Since then, scholars began to pay close attention to the relationship between capital structure and corporate performance, and they put forward the agency cost theory, signaling theory, incentive theory and pecking theory and other famous theories. These theories from different perspectives have greatly enriched and developed the theory of capital structure, and provided an important reference for the subsequent theoretical research and practical application. Although domestic research on capital structure started late, after a period of efforts, Chinese scholars also have a lot of insights according with our national conditions.Our country is in the stage of comprehensively deepen reform, and the Chinese economy needs transformation and upgrading. Therefore, Chinese enterprises should have a comprehensive and clear understanding of the company’s financial situation in order to develop steadily. Considering the listed companies of our country are mainly manufacturing companies, and manufacturing plays an important role in the Chinese economy, so the author thinks that it is necessary to have a deep analysis on the capital structure and corporate performance of listed manufacturing companies. In this way, we can have better understanding and suggestion on the financial position of manufacturing companies.In order to study the correlation between capital structure and corporate performance of listed companies of Chinese manufacturing industry, this paper will be divided into five parts to analysis:The first part is introduction. In this part, it mainly introduces the research background, purpose and significance of this article, and has a summary of the research content, research frame and method of this paper.The second part is the theory part. In this part, it firstly has a simply review on the development of the capital structure theory, and then divide the capital structure theory into four stages:early stage capital structure theory, modern capital structure theory, new modern capital structure theory and post capital structure theory. In early stage capital structure theory, theory of capital structure can be roughly divided into three types:theory of net income, net operating income theory and traditional theory of marginal cost of financing. In the modern capital structure theory, the study of scholars are mostly based on the theory of MM. Based on the relaxation of the MM theory premise, scholars did researches from different perspectives. Firstly, from the perspective of tax differences, some researchers studied the effect of tax differences on capital structure. Secondly, from the perspective of bankruptcy costs, some researchers studied the effect of bankruptcy costs on the company’s capital structure. Thirdly, some researchers considered the tax differences and bankruptcy costs at the same time, and had an comprehensive study. In this stage, the typical theories mainly are MM theory, the revised MM theory, Miller model, Trade-off Theory and post Trade-off Theory. In the new modern capital structure theory stage, scholars turned into the theory basis on information asymmetry. At this stage, the scholars have put forward the agency cost theory, signaling theory, incentive theory and the pecking order theory, etc. In the mid80s, the post modern theory of capital structure got on the stage. In this stage, the theoretical study could be divided into the school of the managerial model of capital structure and the school of product market of capital structure. After the review on the development of the capital structure theory, this part also make literature reviewed and evaluated on the relationship between capital structure and corporate performance at home and abroad.In short, the relationship between capital structure and corporate performance are mainly positive in foreign studies, such as Masulis (1983), Harris and Raviv (1991), the Shah (1994), Berger et al.(1997), etc.; the relationship between capital structure and corporate performance are mainly negative in domestic studies, such as Chen Xiaoyue, Li Chen(1995), Lu Zhengfei, Xin Yu (1998), Lv Changjiang, Han Huibo (2001), Xiao Zuoping (2005), etc. This suggests that the Chinese market is different from the foreign market.In the Chinese market, the company showed a negative correlation between capital structure and corporate performance is likely to be due to the creditor’s rights debt relations of "virtualization", soft constraint characteristics of debt and bankruptcy mechanism is not sound and control transfer is difficult for the listed company and the creditors (especially state-owned Banks), so the role of debt financing can not play its positive role in corporate governance and debt control effect.The third part is qualitative analysis. In this part, there is qualitative analysis of corporate performance and capital structure respectively for the listed companies of manufacturing.In the analysis of company performance, we confirm the maximum density interval of ROE of the manufacturing listed company through the analysis of cross section data. We also compare the difference between the ROE of the manufacturing and the ROE of other industries, as well as comparison between different manufacturing companies by time series analysis. In the analysis of capital structure, we analyze the ratio of liabilities to assets and current debt ratio respectively. The cross section data analysis and the time series data analysis are both used. Through the qualitative analysis of different financial indicators, this part draws the following conclusions:(1) From2010to2012, the return on equity of listed manufacturing companies is mainly in the0%-10%range, and the amount of companies of asset-liability ratio from0%-100%range remains stable. Compared with the return on equity of listed companies in other industries, the average return on equity of listed manufacturing companies is relatively low. It is possible due to the macro economic slowdown, the rising of labor costs, environmental policy and international patent intellectual property makes manufacturing companies face to falling margins.(2) From2010to2012, the asset-liability ratio of listed manufacturing companies by mainly concentrated in30%-70%range adjust to10%-50%range.In general, the manufacturing average asset-liability ratio is at a lower level compared to other industries, maintains at around46%. I think, there are three reasons for debt financing difficulty of manufacturing companies. Firstly, disparity of profit gap is bound to lead to free money tend to flow to the financial sector rather than low profit industry, such as manufacturers, under the condition of market economy. Secondly, the traditional manufacturing companies in China have a large number of fixed assets, but due to lack of patents and patent intellectual property rights, the company production technology, production equipment could be replaced by new technology, new equipment at any time. Therefore, the fair value of manufacturing company is likely to decrease. In this case, manufacturing companies is difficult to get bank loan by mortgages. Thirdly, because most of the products of the Chinese manufacturing company are low value-added products, and they have weak market competitiveness, so the operational risk is higher in a manufacturing company in China. Therefore, in order to ensure the company’s overall risk in an acceptable range, it need to reduce the financial leverage of the company, so as to control the financial risk of the company.(3)From2010to2012, the current liabilities rate of the manufacturing listed companies are mainly concentrated in90%-100%range. The current liabilities rate is high, and the debt structure is unreasonable. For capital providers, short-term borrowing longer-term loan although yields lower, but the risk is relatively low. In order to guarantee the safety of their money, capital providers tend to provide short-term debt to manufacturing companies. For manufacturing companies, it is easier to get short-term loans than long-term liabilities. However, if a manufacturing company rely on too much short term debt, it is likely to face the risks of potential liquidity funds insufficiency and the suddenly raising of financial cost, which are bad for the long-term sustainable development of manufacturing companies.(4) In order to achieve sustainable development, Chinese manufacturing companies should maintain ratio of liabilities to assets at a lower level. If the asset-liability ratio is too high, profits might fall further.The fourth part is quantitative analysis. In this part, first of all, this paper put forward the hypothesis that capital structure and corporate performance of Chinese manufacturing listed company show a negative correlation, based on the existing research literature at home and abroad. Secondly, the research model is built and the variables are defined and instructed. This part has chosen the financial data during2005-2012of manufacturing listed companies which issued A shares in Shanghai or shenzhen stock exchange before2003(including2003). After sorting and filtering, we ultimately determined1496data of the187listed companies as the sample data. Finally, after a series of empirical test using sample data, the following conclusions are drew:capital structure and corporate performance of Chinese A-share manufacturing listed companies exists significant negative correlation relationship. As for other factors related to corporate performance, the first big shareholder ownership, firm size, growth ability, equity balance degree and the board size have significant influences on corporate performance, and whether chairman concurrently general manager has no significant impact on corporate performance.The fifth part is the conclusion of this article. In this part, through comprehensive consideration of conclusions of the qualitative research and quantitative research, there are the overall conclusions:(1)The average return on equity of listed manufacturing companies is relatively low. It is possible due to the macro economic slowdown, the rising of labor costs, environmental policy and international patent intellectual property.(2)The current liabilities rate is high, and the debt structure is unreasonable. Companies are likely to face the risks of potential liquidity funds insufficiency and the suddenly raising of financial cost, which are bad for the long-term sustainable development of manufacturing companies.(3)Capital structure and corporate performance of Chinese A-share manufacturing listed companies exists significant negative correlation relationship. As for other factors related to corporate performance, the first big shareholder ownership, firm size, growth ability, equity balance degree and the board size have significant influences on corporate performance, and whether chairman concurrently general manager has no significant impact on corporate performance. According to the qualitative analysis and quantitative analysis, this paper puts forward the following suggestions:(1) The government shall establish a good financing environment, and enrich financing sources. So companies can have more choices when they need money. They can issue shares as well as debt financing.(2) Manufacturing companies should strengthen the consciousness of independent innovation, and increase investment in scientific research. Through the establishment of the independent intellectual property rights and enhancing the competitiveness, Chinese manufacturing companies will have more profit space so as to offset the effects of the rising labor costs, environmental policy international patent intellectual property technical barriers. Therefore, Chinese manufacturing companies will have a better future.Innovation of this paper:(1) In terms of sample data, this article choose the manufacturing to analyze, which is the biggest mount in listed companies. And sample data is select from2005to2012, which represent the latest status of manufacturing listed companies in Chinese.(2)In terms of research methods, this paper combines the mathematical statistics method and the empirical method. It not only carries on the descriptive statistical analysis of operating performance and capital structure of manufacturing listed companies, but also carries on quantitative research for their relationship. This makes the research results have very strong powers of persuasion.Inadequate in this paper:(1)This article only carries on descriptive statistical analysis and regression analysis for the listed manufacturing companies, so the range of data selection is not comprehensive. Therefore, the research conclusion has some limitations.(2) The empirical study of this article is only limited to the influence of capital structure on corporate performance of listed manufacturing companies, and there is no further study of the influence factors of capital structure. According to the above limitations, the author expects to make appropriate extension in the subsequent study, so as to improve the research of this paper.