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On interest rates on the capital structure of listed companies

Author: HuangGuoLiang SunJia From: www.yourpaper.net Posted: 2010-07-12 00:28:48 Read:
Abstract: In this paper, the current capital structure impact factors of lack ignore the macroeconomic factors, focuses on the impact of interest rates on the capital structure. The data of 266 listed companies from 1996 to 2006 to test the relationship between interest rates and capital structure. The results show that: the interest rate significantly affect the capital structure of listed companies in China, both a negative correlation between changes in interest rates has a significant impact on capital structure adjustment.
Paper Keywords: interest rates listed companies' capital structure affects
A literature review

(A) foreign literature to when najan and Zingales (1995) as well as Demirguc-Kun and Maksimovic (1999) study extended to developing countries, found that, despite not play any role in the majority of the capital structure model macroeconomic variables However, the differences in the macroeconomic environment severe test for all model. In recent years, wald (1999), Booth, etc. (2001) A comparative study of the corporate capital structure of the different countries to further expand the connotation of the capital structure theory. Their study found that the capital structure and the institutional environment of a country's macro-economic factors, the company features closely related. The level of interest rates contains a large number of macroeconomic information and the price of the transfer of the right to the use of funds in the capital credit markets, enterprise financing can not be separated from a trade-off analysis of the market interest rate. Abroad, Kim, Ramaswamy and Sundaresan (1993) and Longstaf and ISchwartz (1995) that the debt ratio increased with the increase in the risk-free interest rate, mainly because of the risk-free interest rate increases in the risk-neutral framework within resulting in decline delinquencies. Ieland (1998) and Leland and Tdif (1996), found that, when the risk-free rate is increased, the rate of return of all assets increases the probability of default is reduced, thereby increasing the ability of the company's liabilities. Russo et al (1999) that the cost of debt financing due to interest rate increases, rising interest rates make equity financing more attractive. The empirical results obtained the manager rights of cooperatives, the interest rates on the capital structure have a significant impact, because of such a society is more concerned about the increase in interest expense led to the decrease in profit margin. Bancel (2002) analysis of the influencing factors of the company's capital structure in 17 European countries, the level of interest rates is the manager an important factor to consider corporate liabilities policy, and usually is the case of lower interest rates, the enterprise adoption liabilities financing. Huang, Ju and Ou-Yang (2003) believes that changes in interest rates affect the gearing ratio.
(B) the domestic literature Fu Yuan Dynasty (1999) noted that the macroeconomic impact of interest rates on the capital structure, he thinks: When the corporate capital gains rate on the macro interest rates, companies will tend to raise the level of indebtedness. Lin Xiaoji (2001) discussed the impact of changes in interest rates on the capital structure, the cost of capital rate is greater than the lending rate, the financial environment of low interest rates to increase loans to get the profits between the operating income rate and the rate of interest on borrowings the difference, so a change in the capital structure. Jane Wang (2007) concluded that using the regression method: the actual lending rate has a significant impact on the optimal capital structure. Yan Xiaoming (2004) that the capital structure of the enterprise should make the appropriate adjustments with liabilities Interest rate changes. Jiang Zhensheng (2OO1) studies suggest that the level of interest rates and the market value of asset-liability ratio was significantly positively correlated. Hung positive, Wang Lei (2005) that the debt interest rate and the asset-liability ratio is related to the debt interest rate represents the cost of debt financing, asset-liability ratio of the positive correlation between low may mean that the cost of equity financing, although since 1996 been repeatedly cut interest rates, equity financing preference of listed companies is still there. Liu Jin, Yi Fa Hai (1999) combined with China in 1996 and has six times the actual situation of the lower interest rates several times to cut interest rates, the paper demonstrates that the impact of changes in the capital structure is consistent with the theoretical and practical. Cai Nan and Lehi spinach (2003) concluded: the actual lending rate and the debt ratio was significantly negatively correlated. Original Yijun Sun Xiaohua data of all listed companies in Shanghai and Shenzhen in China, 1995-2004 (2006) findings actual loan rates and target leverage negative correlation.
Looking at the literature, you can be sure that interest rates significantly affect corporate capital structure. But most of the existing literature on the theoretical analysis, empirical analysis. China's current interest rate formation mechanism of the market means more and more attention has begun to gradually fade out its administrative means. The 1996 unified inter-bank lending market network run, the unified national inter-bank lending market interest rates liberalized policy financial bond market in September 1998 issue of interest rates; twice to expand lending rate floating range in 1998 and 1999 ; early 2002, rural credit cooperatives in eight counties conducted a pilot market-oriented interest rate reform, to expand lending rates range from 50% to 100%, the highest deposit rates may go up 50%; September 2002, the interest rate floating pilot rural credit cooperatives further expand the scope; January 2004, the central bank's third expansion of loan interest rate floating range of financial institutions and cut the excess reserve deposit rates; 2913 of October 2004, the central bank raised the benchmark interest rates of financial institutions to deposits and loans, and relaxation of the floating range of RMB lending rate and allow the RMB deposit interest rate to float downward. At the same time, further relaxation of the loan interest rate floating range of financial institutions. Ignore the macroeconomic factors in the current capital structure, Based on this, the paper selected contains a large number of macroeconomic information level of interest rates as an object of study, the level of interest rates on the capital structure of listed companies in China. China's market-oriented reform of interest rates has been significantly effective, so this will test China's market interest rates affect the capital structure, changes in interest rates affect corporate capital structure adjustment.
Second, the study design
(A) The study assumes that Marx's interest rate theory that changes in interest rates range between zero and the average profit margin; marginal productivity of capital rate determinism: marginal productivity of capital is greater than the interest, investors will continue to borrow and expand investment capital marginal productivity is less than the interest, investors will reduce borrowings and reduce investment; savings investment equilibrium interest rate theory that: the demand for loans from the investment, the size of the investment amount depends on the relationship between the expected investment rate of return and interest rates. When the lowering of the interest rate, the expected rate of return is greater than the possibility of interest rate increases, investment demand will increase. We can see the level of interest rates by more than interest rate theory determines how much of the investor loans and investments. Modern enterprises as the main body of the most important investment in the socio-economic, investment and the amount of financing by the impact of interest rates. When the the enterprise expected rate of return on investment is greater than the interest rate, by increasing liabilities to increase investment, to make profits for the difference. When the the enterprise expected rate of return on investment is less than the interest rate, not by increasing liabilities to investment. Thus, the greater the likelihood of lower interest rates, and enterprises to increase liabilities. Therefore, the proposed assumptions:
Assumption 1: a negative correlation between interest rates and the capital structure of listed companies
Empirical studies in the past factors affecting capital structure of the dynamic model, and did not consider the impact of macroeconomic factors on the speed of adjustment costs and adjustment. China's listed companies, financing capability compared to other companies, enterprises to adjust its capital structure, will not encounter obstacles in policy, more consideration adjustment costs, and decided most of the adjustment costs of listed companies in China The important factor is the actual lending rate. Jane Wang (2007) to build dynamic adjustment model of capital structure, using the regression method to conclude: the impact of interest rates on the speed of adjustment in the level of 1% significant, negative interest rates and adjust the speed off, indicating the government's macroeconomic policies will affect businesses capital structure adjustment costs, when governments raised interest rates, the cost of the enterprises to adjust the capital structure to improve, the larger the size of the funds needed to adjust the capital structure, the adjustment slow. Tong Yong (2006) that the lending rates affect the company's capital structure adjustment speed, it is more obvious. The cost of capital is the financial affairs of the company must be taken into account, the cost of debt is mainly reflected in the size of the loan interest rate. The rise in interest rates will inevitably affect the company's debt financing, thereby limiting the extent and speed of adjustment of the capital structure. The inter-bank lending rates in the entire interest rate system in China plays a leading role in the changes in the interest rate is a direct result of the changes in the lending rate. Therefore, the proposed hypothesis:
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