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Analysis of capital structure of listed companies in China

Author: CaoJinWen PuShaoHu From: www.yourpaper.net Posted: 2010-02-09 21:16:13 Read:
Abstract: academia on the capital structure of listed companies in China believe that China's listed companies is biased in favor of equity financing. Assets of listed companies in China is responsible for the real rate study and pointed out that: listed companies do not give up equity financing opportunities does not mean that the listing of the company will give up the opportunity of debt financing. Equity financing of listed companies in China are not the highest in the financing structure of the list, it is precisely the main responsible for financing its financing structure.
Keywords: listed companies; capital structure; asset-liability ratio

1 Introduction

Around this problem since 1956 on the financing structure and firm value, Modigliani and Miller made his famous MM theorem has conducted a lot of research, and gradually formed a capital structure by influence governance and ultimately affect the value of the company's three theory: First, incentive theory, the financing structure through efforts to influence the work of the operators and other behavior of select, to a certain extent regulate the conflict between an agent; signal theory, corporate financing options to outside investors information transfer; business conditions of control theory, the choice of the mode of financing provides for the allocation of corporate control over and direct impact on the control of the fight in the enterprise. The common feature of these three theories are linked to the company's financial structure and corporate governance structure, and analyze how the financing structure of corporate governance structure so the market value changes, composed of a relatively modern corporate finance theory . With the increasing number of listed companies in China, the study on the financing behavior of listed companies gradually attracted the attention of academia in China.

2 Theory and Literature Review

The 2.1 MM Theorem and extended
Miller (Miller, 1985) is given, a pioneer of modern corporate financing behavior and capital structure management research enterprise value and capital structure irrelevance proposition under ideal conditions: in the enterprise income tax is not considered, the enterprise will not be able to adjust the capital structure to increase the value of the business, that does not matter optimal capital structure.
However, the capital market is not perfect. The MM theorem in theory by certainly encounter a problem, but in practice. In the real world, not only transaction costs is greater than zero, and government intervention to limit free access capital markets; distort the price of capital, the introduction of government revenue, the corporate use of tax incentives by changing the structure of the original capital to change the value of the enterprise market. MM theorem was later amended, Miller (1976) that in the case of corporate tax, the debt has increase enterprise value of the tax shield effect and is not conducive to the enterprise value of the bankruptcy costs, and proposed tax shield and bankruptcy cost trade-off theory. In the 1970s, the rise of the trade-off theory of capital structure, the theory to examine the choice of corporate capital structure by considering the tax factors. The basic idea of ??the trade-off theory: the bankruptcy of enterprises can be raised through to compare debt financing tax-efficient income and debt financing costs to determine the optimal size of the total financing debt financing. The tradeoff theory prove that there is an optimal debt ratio, that is, the point value is exactly offset by the company may increase the present value of the costs of the financial crisis in the increase in the marginal tax liability relief, and also pointed out that because of the business in order to prevent the bankruptcy will try to reduce debt, agency costs is enterprise suppression powerful lever for expanding debt.
2.2 Pecking Order
In 1984, Meyers and Maggie Loof in the of Famous Corporate Financing and Inverstment Decision when Firms Have Information that Investors Do Not Have to absorb the trade-off theory, pecking order hypothesis proposed research agency theory and signal theory. Its assumptions, the financial market is complete, in addition to the information asymmetry. They believe that the information asymmetry due to the separation of the controlling stake with management rights under asymmetric information conditions, managers most insiders than outsiders a better understanding of the real situation of corporate earnings and investment. External signal can only be passed by the insider to re-evaluate their own investment decisions. Corporate capital structure and financing decisions and dividend policy as a means for transmitting signals. They study found that investors less than insider information on the value of the assets of the enterprise, then the equity market mis-pricing. Underestimated cause the value of the equity price by the old shareholders to transfer to the new shareholders, resulting in a net loss of existing shareholders. Think of this situation, even if the NPV is positive investment projects existing shareholders will be rejected. Enterprise group for new project financing in order to avoid the above-mentioned financing can only be through the issuance of securities market seriously underestimated. Therefore, internal funds or risk-free debt Works even the degree of risk is not too high debt should be priority in equity financing. Myers (1984) called "rank order" sort of the pros and cons of this new project financing.
For developing countries, the company's capital structure research literature began to appear in the 1990s, the major findings are divided into two categories: those factors that affect the capital structure of the companies in the developed world is basically similar way affect the company's capital structure in developing countries, great; differences between developing countries and those institutional factors are the key factors that determine the company's capital structure on the legal protection of investors and companies from outside the capital have a very close relationship. Singh listed companies in developing countries for the object did pioneering research. Western Pecking Order (ie corporate financing decisions, internal funds is the preferred external funding in the debt capital than equity capital), developing countries listed companies with "abnormal financing pecking order" phenomenon - external capital than internal funds, external capital in the equity capital than debt capital. For the special nature of the capital structure in developing countries, Singh is a market economy in the process of financial liberalization in developing countries as an interpreter.
2.3 Current Situation of China's existing research
With the increasing number of listed companies in China, the study of the financing behavior of superiors company gradually attracted the attention of academia in China. Current academic characteristics of the financing of listed companies in China believe that there is any equity financing preference of listed companies, listed companies can choose to debt financing and equity financing in preference to choose equity financing (Huang, SA, Zhang Gang, 2004; Wan Chaoling, 2005 ); Obviously, this view is that there is a trade-off financing methods, only tend to equity financing, and so there is no optimal capital structure.
Although the theory of capital structure is usually long-term debt / equity indicators, domestic scholars, however, the financing behavior of Chinese listed companies to use more assets responsible for rate indicators. This is because China's listed companies are generally short-term debt accounted for extension or restitution regain the use of short-term debt into long-term debt. Million Chaoling (2005) 1995 to 2000, retained earnings of listed companies positive average proportion of long-term loans was 24.31%, the proportion of short-term borrowing an average of 50%; undistributed profits for the negative long-term loans of the listed companies the average ratio of less than 15%, an average of more than 60% in the proportion of short-term borrowings. Description debt debt financing structure of listed companies in the proportion of short-term debt generally higher short-term current liabilities ratio over the years, are at a higher level, an average of about 40%. Shows that indicators of asset-liability ratio represents total liabilities / total assets more truly reflect the characteristics of the financing behavior of listed companies in China, domestic scholars usually use the asset-liability ratio indicators to study the behavior of Chinese listed companies financing.

3 characteristics of the financing structure of listed companies in China

3.1 the statistical characteristics of the financing structure of listed companies in China
2004-2006 all A-share listed companies as samples, excluding financial listed companies, excluding abnormal values ??on samples of the six-year average statistics show that 44.44% of the average asset-liability ratio of listed companies, the skewness is only 0.028, indicating The sample companies debt ratio distribution is relatively concentrated. Popular view is different from China's finance theorists, the equity financing of listed companies in China do not dry the highest in the top of the financing structure of listed companies, it is the debt financing become the main body of its financing structure.
To be more specific analysis of the characteristics of the financing structure of listed companies in China, following the financing structure classification statistics. Internal financing and external financing is to study the basic classification of the financing structure, within not financing can be further divided into surplus reserves and depreciation financing; external financing can be divided into equity financing and liabilities financing.
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