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Review of Empirical Research on the structure of foreign capital and enterprise value

Author: WangPingFang From: www.yourpaper.net Posted: 2010-07-10 13:30:29 Read:
Abstract: Capital structure is a research topic of important theoretical and practical significance, so far, many foreign scholars have been many studies done on this issue, a lot of research results show that the capital structure and corporate value is closely related. With China's capital market has improved steadily, and the establishment of modern enterprise system, the issue of capital structure more and more the concern of the theoretical and practical circles. Is generally believed that capital structure affects the cost of capital, thereby affecting the enterprise value, but the specific impact of different scholars come to the conclusion very different This paper summarizes the research results of the analysis of foreign scholars hope that certain domestic capital structure research guiding significance.
Paper Keywords: capital structure; enterprise value; empirical research
I. Introduction
Capital structure theory originated in the 1950s, is one of the Western financial management theory of the three core theory, it is mainly to study the impact of changes in the capital structure of the enterprise value. Explore whether there is an optimal capital structure to enable businesses to maximize the value. Therefore, in accordance with the relationship of the capital structure and corporate value, we can put the theory of capital structure is divided into the following two categories: (1) Capital Structure and Firm Value Theory. In accordance with the Institute of Theoretical come to the capital structure and corporate value relationship can be divided into three categories: positive correlation theory of capital structure and corporate value. Net income theory, the traditional theory, to amend the MM theory, Miller model, agency cost theory, the theory of signal transduction and trade-off theory. (2) Capital Structure and Firm Value negative correlation theory. Bankruptcy cost theory and the pecking order theory. (2) Capital Structure and Firm Value irrelevance. This aspect of the theory of operations to gain theoretical and MM theory. This article is a review of thinking of the relevant foreign capital structure and corporate value relevance of empirical research.
Broad capital structure refers to the proportional relationship between the corporate sources of funding debt capital and equity capital; the narrow capital structure refers to the proportion of enterprises with long-term sources of funds relationship. Most of the foreign scholars tend to be based on the narrow capital structure definition, the use of assets Long-term liabilities ratio to measure the capital structure on firm value measure commonly used Tobin's Q (the company's market value and replacement cost ratio), market capitalization, and the carrying value ratios, stock expected return, profitability indicators (return on capital employed, return on total assets, net assets yield, etc.), shareholders' wealth.
Foreign Empirical Study on the Capital Structure and Firm Value is mainly in the following two aspects: (1) the study of factors affecting capital structure, the value of the enterprise as one of the factors to verify their relationship with the capital structure, (2) in study the economic effects of capital structure, the enterprise value as the dependent variable, as the explanatory variable in the capital structure to study the impact of the mechanism and the extent of the capital structure of the enterprise value. From these two aspects are reviewed
Second, the enterprise value of capital structure
Concluded by empirical research can be divided into the following three categories:
1, the enterprise value and capital structure positively correlated.
Jordan, Lowe and Taylor (1998) 1989-1993 275 British private or independent small and medium-sized enterprises, financial data and questionnaire analysis The findings show that the profitability on the debt ratio was positively correlated. Francisco, Sogorb, Mira (2000) of Spain from 1994 to 1998, the 6482 SME capital structure study also found that although short-term debt financing ratio is inversely proportional to, but with more possibilities or more debt financing enterprise value and capital structure positively correlated. The Brierley, Bunn (2005) An Empirical Study of the British capital structure of the Company from 1975 to 2004 also draw the relevant conclusions profitability and financial leverage.
2, the enterprise value and capital structure negatively correlated.
Kester (1986) Bl1982-1983 cross-sectional data of 344 Japanese companies from 27 different industries and 452 U.S. companies establish linear regression model, OLS estimation, profitability and financial leverage significant negative correlation. Titman and Wessels (1988) by linear structural model of the 469 listed companies in the 1972-1982 U.S. manufacturing data, came to the same conclusion. Harris and Raviv (1991) empirical results as well. The Rajan and Zingalas, (1995) by the intercept Toby model years 1987-1991 G-7 Group cross-sectional data, the application of the maximum likelihood (ML) estimated coefficients, the study found profitable and the United Kingdom, the United States, Japan, Canada Company leverage ratio is negatively correlated, and this relationship is ever increasing with the increase of the size of the company. Douglas (2006), studies have reached similar conclusions.
Wald (1999) examined the factors associated with France, Germany, Japan, Britain and capital structure, total assets carrying amount of long-term liabilities Total liabilities Total assets carrying value explanatory variables, the use of heterogeneous Toby model, the study found that earnings and Leverage ratios are negatively correlated. Booth et al (2001) found by the analysis of the sample data of 10 developing countries (Brazil, Mexico, India, South Korea, Jordan, Malaysia, Pakistan, Thailand, Turkey and Zimbabwe): factors affecting the company's debt ratio in developing countries Profitability is the most important influencing factors, a highly significant negative correlation exists between the exception of Zimbabwe all other companies in developing countries performance and capital structure. Pao (2007) 2000-2005 720 high-tech companies publicly traded panel data, the use of the three time-series cross-sectional regression model and a multiple regression model, the return on assets of explanatory variables, empirical studies earnings and capital structure is a significant negative correlation.
Niv0rozhkin (2004) total assets ratio of net profit as the explanatory variable on these two countries, the Czech Republic and Bulgaria, Akhtar (2005) 1992-2001 in Australia 1637, ABOR (2005) Return on equity rate (EBIT total equity) as the explanatory variable regression analysis of listed companies in Ghana supanvanij (2006) 164 1991-1996, Chen and Strange (2005) EBIT / Total assets EBIT total assets of listed companies in China, Amidu (2007) as the explanatory variable for the explanatory variables in the regression analysis of the Bank of Ghana and Eldomiaty (2007) study of the Egyptian capital structure of the Company was given a profitability capital structure is negatively related to this conclusion. 3, the enterprise value and capital structure was no significant correlation.
Rajan and Zingales (1995) study found that the estimated coefficients of Germany profitability is positive, but not significant in the statistical sense, France and Italy, the estimated coefficients are not statistically significant. Bhole, Mahakud (20O4) the total assets of the operating income as the explanatory variable, the regression results obtained profitability and corporate liabilities negatively correlated, but not in the 1966-2000 period statistically not significant. Nguyen, Ramachandran (2006) pre-tax profit as the explanatory variable regression analysis to the same conclusion
Third, the capital structure of the enterprise value of
1, capital structure and firm value positively correlated
Masulis, RonaldW. (1980) published in the "Financial Economics" article IX of changes in capital structure impact on the price of securities "that the change is a positive correlation between the change in the price of the ordinary shares and the level of financial leverage. Laxmi, Chand, Bhandari (1988) published in the debt / equity ratio of expected return with the ordinary shares: empirical data for debt / equity ratio of positive correlation between the expected return with the ordinary shares. Maaulia (983) trade-off theory of empirical research show that: (1) ordinary stock price movements in and corporate financial leverage of the change in was a positive correlation between; (2) the performance of its liabilities level was a positive correlation between; (3) can the company's performance generated The level of indebtedness of the impact of changes in the range between 0.23 and 0.45. K. Shah (1994) observed when the increase in financial leverage, capital structure changes announced, the stock price increased significantly in the capital structure changes in the nature of the transmission of information; On the contrary, when the financial leverage is reduced, changes in capital structure The information was announced, the stock price dropped significantly. Stock price rises with the increase of the company's financial leverage, decreased with the decrease in the company's financial leverage. Frank and Goyal (2003) that the missing data has also led to the deviation of the empirical results, so they use multiple imputation method to correct this deviation. They use huge database of non-financial corporations in the United States from 1950-2000, including nearly 200,000 observed variables, the study showed: positive correlation between the performance and the carrying value of financial leverage, and between the market value of financial leverage on negative correlation.
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