An Analysis On The Determinants Of The Return To Capital

Since 1800s,the investment rate in China has been kept much higher than in other developing countries.Could the high investment rate be continued?Is it good for strategic adjustment of economic structure in China?All the questions above are under hot discussion.The writer thinks investment efficiency should be taken into consideration when we judge whether the high investment rate is reasonable or not.Nowadays,the study of investment efficiency has been divided into two fields.From the point of views on micros,the characteristics of enterprise finance are used to analysis the factors which affect the rate on invested capital(ROIC).From the point of views on macros,the influence factors on ROIC of a country or area are divided into capital deepening and total factor productivity(TFP).Comparatively,the literatures about influence factor on ROIC in macro perspective are very few.Besides,the conclusions of literatures mentioned above are much different due to different methods and perspectives.A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments.The return on invested capital measure gives a sense of how well a company is using its money to generate returns.Comparing a company's return on capital(ROIC)with its cost of capital reveals whether invested capital was used effectively.From the point of view on definition,the influence factors could be divided into two categories.One is the factor increases ROIC when the actual production of effective capital increases on the basis of invariant nominal capital inputs.The other one is the factor which increases ROIC when capital production capacity per unit increases.One result of capital production capacity per unit increasing is the increase of capital production capacity of every department.The other one is the increase of capital production capacity of some departments with the change of capital structure caused by different capital capacity in different places.In this paper,the influence factors are divided into three categories:technology improvement,capital effective usage amount and capital structure.Specifically,factors related to average capital production capacity increase are classified as technology efficiency factor;factors related to element effective usage amount are classified as element effective usage amount factor;factors related to total capital production capacity change caused by capital structure are classified as allocation efficiency factor.In the paper,the measure index of technology improvement is foreign investment;the measure indexes of capital effective usage amount include inventory relative size,labor participation rate and energy production ratio;the measure indexes of capital structure include government size and industry size.Firstly,the paper extracts the chief composition series which could reflect capital effective usage amount and capital structure with the method of PCA.Then the influence degree of each factor on ROIC are analyzed through VAR model.The empirical analysis shows that effective chief composition series could be extracted from measure indexes including capital effective usage amount and capital structure.The impulse response function of VAR model shows:the technology improvement brought with foreign investment would increase ROIC in short term.While with the popularization of advanced technology,profit margin would be reduced as a result of competitive market,and then the ROIC would also be reduced.2.The role of capital effective usage amount on ROIC change is not very important.At last,time varying parameter is brought in TVP-VAR model.It shows that the influence factors on ROIC are almost the same between early 1990s and 2008 when the subprime crisis broke out.