The Case Analysis Of Capital Structure Dynamic Adjustment For North China Pharmaceutical

The study of capital structure has entered into the scientific track since MM theory is put forward.And gradually a relatively complete theoretical system including trade-off theory,agency theory,information asymmetry theory,market timing theory and pecking order theory has been formed.With the development of econometrics dynamic panel data statistical method,study on capital structure gradually transforms from the static research to dynamic point,which takes the view that the company is not always in the optimal capital structure at different times,and it will not adjust to target capital structure completely and quickly due to the adjustment cost,however,managers will balance the cost and benefit to make partial adjustment and different company present different adjustment speed.As one of the important indexes to reflect the financial situation,changes of capital structure may cause the changes of the ability to resist risk,future profitability,firm performance and other aspects.Reasonable capital structure can reduce the cost of capital,make use of the financial leverage and improve efficiency in the use of funds and capital strength.Therefore,rational managers will adjust the capital structure to make it reach or approach the optimal situation according to the macro environment and characteristics of company.As China's capital market is developing rapidly,and market economy system is continuously improving,meanwhile,the enterprise capital structure decision-making behavior becomes more and more complex,which leads to the difficult in making a more comprehensive explanation by the static research,so research on the dynamic adjustment of capital structure becomes more and more significant.In view of this,this article studies on the capital structure dynamic adjustment of North China Pharmaceutical Ltd(hereinafter referred to as the "North China Pharmaceutical").In recent years,we have seen the increasing development of China's pharmaceutical industry,and it has been becoming the focus of the whole society.The pharmaceutical manufacturing industry is expected to maintain high speed development along with the development of science and technology and the increase of population aging.North China Pharmaceutical,as pharmaceutical brand,has high market share in the domestic chemical pharmaceutical market,but North China Pharmaceutical has high asset-liability ratio which is far more than the industry average recently.Its debt led to severe loss of company.In order to change this situation,company decided to optimize the capital structure.Therefore,by exploring the dynamic adjustment of capital structure of pharmaceutical in North China,this paper found the changes after its capital structure adjustment and its influence on the company,then put forward some suggestions on company capital structure optimization.At first,this essay introduces the research context and importance.Then,it reviews the research done by both domestic and foreign scholars on two main aspects,such as the target capital structure and dynamic adjustment of capital structure influencing factors.We can find the study of capital structure dynamic adjustment in China starts relatively late mostly combined with empirical study,while rarely with the analysis of the case.So,we introduce the research method and writing structure of this essay.Following,this dissertation introduces the related theories on capital structure and dynamic adjustment,and expounds the concrete contents of dynamic adjustment of capital structure and the factors of the adjustment,which are the theoretical basis for the case.The analysis of case starts in the third chapter.First,the essay provides a general description on the initial situation of capital structure of the North China Pharmaceutical from 2007 to 2013.In the following,we elaborate the changes of North China Pharmaceutical's capital structure and its dynamic adjustment by several indicators including asset-liability ratio,long-term solvency and short-term solvency and the bias of the firm's capital structure from its target one and adjustment speed.Then the fourth chapter analyzes the results of company's capital structure dynamic adjustment from several aspects for the company's financing capability,firm performance and corporate governance.We find that through the dynamic adjustment of capital structure,the company's asset-liability ratio is declining and tend to target capital structure,and the efficiency of the use of corporate financing has been improved,besides,the company cost of capital is reduced.Therefore the market value of the company gets a promotion.The last chapter of this paper draws some conclusions from the capital structure adjustment of North China Pharmaceutical and gets some inspiration.Through the balance of adjustment cost and adjustment benefit,the company will adjust the capital structure to reach the optimal state when the benefits outweigh the costs of adjustment.For North China Pharmaceutical,the capital structure of the company is far beyond the scope of a range of target capital structure,the high asset-liability ratio leads to huge losses,thus the loss of performance and solvency deterioration have accelerated the company dynamic adjustment of capital structure.When the bias of actual capital structure from its target ones is greater,the adjustment speed will be faster.On the other hand,by above case,we can find that the downward adjustment of capital structure can enhance the strength of the capital.This dissertation obtains some experience and enlightenment.At first,company should determine the reasonable scope of capital structure combining macro environment and its own characteristics and other factors through the balance of financial risk and the cost of capital.Capital structure should fluctuate in the reasonable range,when there are excessive or insufficient liabilities,capital structure should be adjusted to improve the company's anti-risk ability.Secondly,there exists an optimal capital structure and it constantly changes.However,because of adjustment costs,the company will not quickly adjust to the target ones.Company needs establish a reasonable dynamic adjustment mechanism to determine the adjustment direction according to the unreasonable parts of capital structure and the business needs.At the same time,when managers make dynamic adjustment of capital structure,they mainly balance the adjustment costs and adjustment benefits.And interior modulation costs mainly arise from conflict between managers and shareholders,thus improving the corporate governance can effectively solve the conflicts between shareholders and managers,so as to better realize the dynamic optimization of capital structure.This paper is in hope of providing reference for list companies on dynamic adjustment of capital structure and promoting the healthy development of the company and the capital market.