Business Cycle And Capital Structure Of Steel Enterprises

After a dozen years of rapid growth driven by demographic dividend,China's economy has slowed down.Due to the weak downstream demand,the traditional manufacturing industry is now facing the crisis of overcapacity.By the example of steel enterprises,many factories suffer from high inventory,low steel price and large losses.The heavy debt burden and interest expenses brought by high leverage resulting from credit expansion,make things worse.As we know,the winter of steel industry has come.Overcapacity,excess inventory and high leverage contribute to the inhibition of investment.During the time of industry transformation and upgrade,lowering the leverage is necessary.So it is of great application and use to analyze how enterprises decide their capital structure in the fluctuation of business cycle.Steel industry is selected as research object because it is one of the most typical industry with high leverage and excess capacity.The research outcome based on the unbalanced panel data of China's listed steel companies for 2001-2014 shows that: First,according to tradeoff theory,steel enterprises have their optimal capital structure determined by its own characteristc including size,tangibility,profitability and liquidity.Mean reversion to the target leverage is observed.Second,leverage is pro-cyclical,but not sensitively,which reflects the underdevelopment of marketization.Third,the adjustment speed of leverage is higher during expansion and lower during excession due to hearvier adjustment costs.