The Influence Of Capital Structure On Corporate Performance

MM theory, the starting point of modern capital structure research, was first proposed by Modigliani and Miller based on perfect capital markets in the 1950s. They had made a thorough study of the MM theory study with and without considering the effect of corporate income tax, which lay a foundation for future research. Along with the gradual relaxation of assumptions, more and more people carry out further research on MM theory from various angles, and, promote the development of the capital structure theory as a result. The study about the impact of capital structure on business performance has both theoretical and practical significances. Capital structure leaves multiple effects on enterprises, which can be shown that it affects both the financial arrangements in microscopic scales and total valuation of the company in macroscopic scales, besides, it also has a great impact on business performance. Capital structure decision is critical for it plays a crucial role in company’s development and financing costs. A wise decision will reduce WACC to improve corporate value, vice versa. By studying the relation between business liability and performance, the company can choose a reasonable capital structure and financing channel to obtain funds to reduce WACC and improve corporate value as well. Thus, to develop a wise capital structure not only conducive to the development but also helpful to the performance of the capital structure is particularly important. Western countries start to study capital structure theory earlier while our study is relatively late, the unwise allocation of capital will affect the survival and development of enterprises. It needs to put a lot of costs to support a company’s development, and to raise capital, you must bear the cost of capital, which has great significance to the development of enterprises.As the backbone of our national economy and the essential condition for the normal operation of the economy, manufacturing industry has a profound impact on China’s economic development and social stability. Therefore, how to choose the right capital structure to reduce the cost of capital, thus enhancing core competitiveness and performance of our manufacturing industries, is an important factor for the sustainable development of our manufacturing. Each period of manufacturing companies, from the foundation to the normal operation, cannot have no steady flow of funds. Therefor, timely adjustment of the companies’ capital structure and optimization of the asset-liability ratio are particularly important to ensure the capital demand of manufacturing companies to achieve low-cost financing as well as high-efficiency use.In this paper, data of 773 manufacturing listed companies from 2010 to 2013 is the total sample, business performance is chosen as dependent variable, capital structure, interest-bearing debt ratio, non-interest bearing debt ratio, short-term borrowing ratio and long-term borrowing ratio are taken as the independent variables, and enterprise scale, ownership concentration, growth, board size, annual dummy variable, industry dummy variable are selected as our control variable. Herein empirical analysis method and Stata are adopted to carry out statistical analysis on the above selected variables, and the influence of capital structure on business performance is examined by the multiple regression method. In summary, we take both normative analysis method and empirical analysis method to analyze the influence of manufacturing capital structure on business performance, and put forward the hypothesis model on that basis. In order to avoid the endogenous effect, we select the delayed explanatory variables when modeling, besides, robustness test is carried out to make conclusions more reliable. Considering that we mainly focus on domestic manufacturing listed companies, method of domestic related research is adopted for sample data selecting and data processing in our empirical study.Major conclusions are as follows:the capital structure of China’s manufacturing listed companies is negatively related to business performance; the interest-bearing debt ratio is negatively related to business performance; the non-interest bearing debt ratio is positively related to business performance. We can also conclude that the bank borrowing of one manufacturing listed company is negative related to its performance while the impact on the performance of long-term borrowings is more obvious. All data used herein is selected from recent years with the range from 2010 to 2013. At the same time since 2010, especially in early 2012, the Commission suspended acceptance of IPO materials, so there were few stocks to list during that time, the new-listed stocks have little impact on the stock market as well as the performance of the listed companies, which makes our conclusion more reliable with practical significance.