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Empirical Analysis of Factors Influencing Capital Structure of Listed Companies

Author: HuangJunJun From: www.yourpaper.net Posted: 2009-10-24 01:04:00 Read:
Abstract: In this paper, the data of China's listed companies to analyze the factors that affect the capital structure of listed companies, the panel data regression results show that the capital structure and the actual growth rate of the gross domestic product (GDP), the actual lending rate and the market capitalization rate, profitability, liquidity variables such as a significant negative correlation; significant positive correlation with the rate of inflation, financial ratios, company size, growth opportunities and asset structure and other factors.
Keywords: capital structure of listed companies influencing factors

Modern financial theory research, capital structure not only affect the company's market value, and corporate governance, macroeconomic performance are closely related. Modigliani and Miller (1958) that, in the capital market, if there is no tax, bankruptcy costs and agency costs, corporate market value will be independent of its capital structure. But in the real economy, the capital market can not be improved, and there is the impact of factors such as taxes, agency costs and bankruptcy costs, the capital structure is closely related to its market value. In an imperfect capital market, different companies facing different financing instruments, different financing instruments have different financing cost.
More complex due to the special nature of the institutional environment, the impact of the capital structure of listed companies in China factors, the impact of foreign capital structure factors affect the capital structure of listed companies in China in the same way? Empirical studies influencing factors of the capital structure of listed companies in order for Chinese enterprises to select the appropriate capital structure to provide reference.

Study Design

(A) variable set
Inspection macroeconomic factors and financial deepening impact of factors on the formation of capital structure is the main purpose of the empirical part. In this paper, the company's capital structure is defined for balance, that balance was the dependent variable; explanation of the capital structure of the main factors include basic macroeconomic indicators, financial deepening indicators, firm characteristics factors. Bond market capitalization / GDP "reflects the basic macroeconomic indicators, to select the national economic growth rate, inflation rate, real lending interest rate index; for financial social indicators, this article draw Rajan and Zingales (1995), with MB; financial institutions (including all types of banks, credit unions, etc.) the degree of development of the bond market loans to the private sector / GDP reflects the degree of development of the banking system BANK; selected used six indicators: profitability, company size, growth, asset structure, liquidity, earnings volatility, which helps the comparison with the existing literature, the similarities and differences. The major variable is set (see Table 1).

(B) the expected relationship predicted
Real growth rate of gross domestic product (GDP). When the economic growth rate is high, the economy is high, boom, a higher level of profitability and expectations. Theory, changes in corporate financial leverage should change with the economic growth rate was the same relationship.
The rate of inflation. The rate of inflation will force the company to a higher discount rate used in the assessment of investment projects, which often lead to only a few of the projects will be adopted by the growth of the enterprise so compromised, the capital structure will The indirect impact is expected, with the debt ratio is negatively correlated.
The actual lending rates. Expected (means debt refinancing costs rise) when the actual loan interest rates to rise, businesses will be more equity financing and lower financial leverage ratio.
Related financial ratios. The funds required by the development and operations of the company can be obtained in a timely manner to meet financing options is more diverse, and is conducive to the optimization of the capital structure.
The size of the stock market and the bond market size. The size of the market indicators reflect a positive correlation between the size of the amount of debt financing, expected the company's assets-liability ratio listed companies from the capital market.
Profitability. The stronger the profitability of the company, the easier it is for internal financing, the high profitability of the company usually has a lower level of financial leverage. The trade-off theory that the company's asset-liability ratio is a result of the trade-off between bankruptcy costs and tax shelter benefits, the high profitability of the company bankruptcy less likely, so rational company will improve asset-liability ratio in order to fully enjoy the tax liabilities brought shielding effect.
The size of the company. The larger the size of the company, the greater the likelihood of diversified business, thereby more effectively dispersed risk, smaller than in the other conditions of a given case, the probability of bankruptcy by the large companies. Therefore, the larger the company, the higher its financial leverage.
Growth opportunities. According to the trade-off theory, for companies with high growth, the cost of bankruptcy is quite large, these companies tend to equity financing. Contrary to the view, the pecking order theory that high-growth companies tend to lack of funds, internal financing more difficult, and thus had to choose the subprime debt financing.
Asset structure. Is generally believed that the enterprise can be used to guarantee more assets, the stronger the guarantee capacity, the lower the cost of issuing bonds or borrowing, and thus the greater use of debt financing, in order to reduce the total cost of capital. Therefore, the asset-backed capabilities with asset-liability ratio is positively correlated.
Flowability. The one hand, the higher the current ratio of the company, it shows more ability to pay maturing short-term debt, the company may increase short-term liabilities. The other hand, the company's current ratio is high, the company has more liquid assets, and may use these liquid assets as a new source of investment funds, thereby reducing the demand for debt. Therefore, the company's ratio of current assets to play a reverse impact on the financial leverage ratio.
The (c) sample selection
The company used data from the Wind database, to use Eviews5.1 statistical software for analysis and regression. Build a panel data set, in order to reflect the theme of the study that explained the role of macroeconomic factors and financial deepening in the choice of capital structure, to show the trend characteristics, so select a company listed in 1999 as a sample. Taking into account the financial company's capital structure with particularity and therefore exclusion; ST, PT classes and consecutive losses for more than two years in a state of abnormal financial listed companies not included in the sample. In addition, Wind database statistics insufficiency of some listed companies, these companies are also excluded. The last 150 company, the time span 2000-2008.

Empirical Analysis

(A) analysis
Paper selected a large number of explanatory variables to explain the capital structure of listed companies in China, therefore, must understand the relationship between variables, explanatory variables to reduce multicollinearity. Each variable in correlation (Table 2).
Be seen from Table 2, was explained the variable LEV most explanatory variables between the correlation coefficient is large, and the correlation coefficient between the most explanatory variables smaller, but between the BANK FIR, SCB, MB, GDPG and CPI The correlation coefficient may exist multicollinearity here need to pay attention to in the regression analysis.

(B) the regression results
Derived model parameter estimation results (see Table 3) using Eviews5.1 software, the use of the fixed utility model. Because the total leverage LEV Hausman test value H = 80.58 (p-value = 0.000), and so in theory should accept the set of the fixed effects model.
Preliminary estimates from Table 3 results, adjusted coefficient of determination reached 0.825, indicating a high goodness of fit of the model; DW test value is 0.96, indicating that the residuals of the estimated equation serial correlation. Explanatory variables BANK FIR, SCB, MB correlation coefficients are high, according klein rule correlation coefficient greater than the adjustment factor variables multicollinearity is not conducive to the analysis of the results, it should be discarded variables BANK. Similarly, GDPG, CPI high linear correlation, so the response to these two variables have a choice. Finally, the estimated results filtered variables.
From the final estimated results, in addition to variables TANG, IV, RLL, and the remaining variables in the confidence level of 90%, with be interpreted related variables LEV significantly. The empirical results show that the relationship between most of the explanatory variables and the explanatory variables are consistent with the expected results, but the inflation rate is exactly the opposite impact on the capital structure of listed companies.


The empirical results show that:
Chinese government restrictions on deposit and lending rates makes debt financing, the effective interest rate is very low, even for several years there have been negative interest rates. A positive correlation between the inflation rate and the debt ratio. Financial growth indicators the FIR and asset liability ratio is positively correlated. China's financial growth is mainly due to the improvement of institutional change in the level of monetization M2 and bank loans, the financial contribution of the structural changes relatively weak financial growth in the large part of the total amount of financial assets on the original structure and financial institutional framework simple expansion. So, most of the sources of corporate financing is still debt financing from banks, and short-term debt financing.
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