The Impact Of Chinese Electricity Power Companies’ Capital Structure On Corporate Performance

Since Merton Miller and Franco Modigliani, the “Father of modern science of finance,” put forward MM theory-Independent of capital structure theory, many scholars have done a lot of research about company’s capital structure. Earlier studies have shown that there is certain relevance between the capital structure and company’s performance, which provides help for corporate governance and development theory. Paper research shows that China’s capital market is less developed than western ones, and so is Chinese company’s management structure. Conclusions of the study abroad do not perfectly apply to Chinese markets, and there are still differences among Chinese scholars’ opinions. Therefore, research on the relevance between capital structure and company performance can be very meaningful.The electric power industry is a guiding and basic industry in a national economy and governments attach high importance to its development.Along with the electric power industry reform, the Chinese government lowered the financial support, while electric power enterprises still have significantly increased the demand for funds. Therefore the debt financing scale in this industry has been enlarged, leading to higher asset liability ratio, which is against the sustainable development strategy of the electric power industry. It is an inevitable choice for the electric power companies to broaden and diversify the financing channels, and whether the capital structure is reasonable will have a direct impact on the company’s performance. Therefore, the research of electric power industry capital structure of listed companies is not only meaningful for the power industry listed company’s financing decisions, but also can be contributive to the development of the entire power industry.In this paper, the origin and development of the capital structure theory is firstly reviewed and then the domestic and international research on Capital Structure and Corporate Performance. After that we analyzed discusses how retained earnings, equity structure and debt structure influence company performances in theory.In empirical study part, we chooses 35 A-shares listed electric power companies as research objectives between the year 2002 to 2013.According to the electric power industry own capital structure characteristic and performance, we build a panel data model and use Eviews 8.0 software to analyze the selected data. The paper designs control variables that affect performance, all of which are in view of the financial cost management theory and industrial organization theory. Next we carry on the unit root test to the panel data,and determine the Variable intercept model with fixed effects via Covariance test and Haussmann test. Based on the empirical results of regression analysis, the paper find the key factors that impact the correlation between capital structure of the power industry listing Corporation and performances. Finally, we make the analysis of empirical research based on the results of the capital structure of Chinese electric power industry and make suggestions.