An Analysis On Influence Of The Capital Structure Of GEM From Implicit Contracts And R&D Capabilities

The capital structure of GEM has become the focus from the academia ever since GEM was set up on October30,2009in Shenzhen Stock Exchange. So far, people are still in the early research on the factors of GEM listed company’s capital structure, which is to study the relationship between capital structure and firm size, growth, profitability and other indicators, not including its inherent characteristics. However, we realize that the GEM itself is high-tech, burgeoning and smaller-scale. Whether there is a unique key factor which influences the capital structure becomes the original intention of this paper.Since most of the GEM companies are knowledge-intensive and technology-intensive, such entities present high R&D investment, technological innovation ability, high value-added products and fast growth speed which determine the higher asset specificity and lower liquidation value to the GEM. Owing to the existence of incomplete contracts, the high degree of asset specificity and R&D capabilities will affect the extent of principal-agent relation and information asymmetry among the parties (shareholders, managers and creditors),thereby affecting the agency costs of different financial methods. Therefore we find the implicit contract and R&D capabilities become the two key factors that affect the capital structure of the GEM. This paper is on the basis of capital structure and institutional economics theory, and intends to research the impact of implicit liabilities, asset specificity and R&D capabilities to the capital structure from the perspective of implicit contracts and corporate R&D Endogenous economic growth point of view. Through empirical analysis of the current GEM’s capital structure, the paper finds out several problems in the capital structure and makes recommendations.The paper selected277listed companies on GEM up to December31from2009to2011as cross-sectional data. First select15indicators to evaluate the R&D scores as a measure of corporate R&D capacity through factor analysis. Followed by the establishment of a multiple regression model, the paper uses asset-liability ratio as the dependent variable and uses asset specificity, hidden liabilities and R&D capability indicators as independent variables, finally derives impact of the three factors to the capital structure. The study found the debt ratio of listed companies on GEM was significantly negatively correlated with R&D capabilities. From the perspective of implicit contracts, asset specificity was significantly negatively correlated with debt ratio.But the relationship of implicit liabilities and cross-product term between implicit liabilities and asset specificity was not significantly negatively correlated with the capital structure. Thus conclusion of the article is as followings:First, the root cause of the GEM listed companies’ low debt ratio is the existence of implicit contract, the claim to the potential stakeholders and the high level of asset specificity.Second, the specific asset is important for the enterprises to fulfill their implicit liabilities, but in the empirical findings, the relationship of implicit liabilities and cross-product term between implicit liabilities and asset specificity is not significantly negatively correlated with the capital structure. This result reflects that the implicit contract delivery mechanism is not perfect on the GEM market. The combined action of implicit liabilities and specificity to the capital structure is mature yet.Third, the GEM broadens the financial channels for high-growth and high-tech enterprises, also promote the upgrading of research and development capabilities on GEM. However, there exists some problems such as a lack of investment on the R&D, an incomprehensive evaluate system of the R&D capabilities, a lower proportion of R&D expenses. R&D’s investment has a certain effect on the ability of long-term debt ratio, but has little effect on short-term debt financing.For the above conclusion, the author believes that GEM should build a sound financial system, standardize the market regulatory system, meanwhile pay attention to risk prevention, optimize capital structure so as to reduce the cost of capital, strengthen the corporate R&D’s investment, and finally enhance business the core competitiveness. In addition, listed companies on GEM should strengthen follow-up services, in order to provide a complete contract. Enhance the transparency and integrity of information disclosure especially for research and development capabilities specific assets. For most of the specific assets and R&D assets have intangibility, public investment information and the application will increase the confidence of the medium and small investors.This paper consists of six parts. The first part is the introduction. This paper introduces the background and significance, writing ideas and research methods, the framework and the basic content of the paper. The second part is the article review and comment. The third part describes the basic theory of the relationship between implicit contracts, R&D capabilities and capital structure. Except for this, the part introduces the connotations of implicit contracts and R&D capabilities. The fourth part of the analysis is based on the theory of institutional economic theory and endogenous growth theory, which researches the impact of implicit liabilities, asset specificity and R&D capabilities to the capital structure and builds hypotheses. The fifth part is the empirical analysis. This part firstly evaluates the research and development capabilities of GEM listed companies through factor analysis, and then uses regression analysis to verify the relationship between implicit contracts, R&D capabilities and GEM listed company’s capital structure. The sixth draws conclusions and makes policy recommendations.