Study On Capital Structure Selection In Transitional Periods

Ever since the birth of the MM theory (by Modigliani and Miller), the Corporate Capital Structure Theory has drawn great attention from and remained as a hot topic of the theoretical circle. Fairly clear-cut theoretical evolutionary paths have come into being and various theoretical hypotheses have since emerged, such as the Signal Model Theory and the Pecking Order Model Theory. One of the most important presuppositions of the theories is that: a mature capital market allows the enterprises the freedom of choosing its concrete financing mix while an effective market supervision mechanism imposes the necessity of making that choice a wise and scrupulous one. However, a great gap has been shown between the practices of the majority of Chinese enterprises, including the listed ones, and what has been indicated as the correct action to take in the western theories. The gap has resulted in high costs and great uncertainties in the financing practices of domestic enterprises. Seemingly, a key transformation in the financing mechanism, on the behalf of the enterprises, from relying mainly on government allocation to getting loans from state banks as the major fund-raising source has led to the high DAR of businesses to state banks. However, the real problem still lies in the soft budget constraint and contrived manipulation under a climate of governmental intervention. The effects of such a soft budget constraint model, as we can see, are manifested in two interrelated facts: firstly, in the initial stages of the investment, enterprises receive extravagant financial support from the government, who often intentionally ignores the concrete size of the enterprises' own capital. Secondly, even when businesses are losing money, government still asks the banks to provide loans to those enterprises instead of seeing to a normal bankrupt. Therefore, enterprises who should have been eliminated after failing to win the market competition survived not through improving its management nor means like that, but through getting undue and sustained financial support from those state-owned banks. From the first sight, the difficulties faced by the businesses in their development should be attributed to the tremendous debts they own to the banks, but in the final analysis, those difficulties actually comes from the increasingly heavy burden of repaying the principal and interest of bank loans which has been accumulated under a soft budget control model and a subsequent undermined ability of making profits. That is to say, those accumulated principle and interests of banks loans has raised the operational cost of the state-owned enterprises and thus further undermined the profiting capability of these businesses. Then we can find a sharp contrast in those listed corporations in terms of financing structure. In most circumstances, they enjoy lower DAR than those of state enterprises and rely on the stock market for a much bigger part. The financing landscape for the middle-and-small-size non-state-owned enterprises is still much different. For one hand, they usually have much difficulties getting financial support from the state banks due to the so-called "ownership discrimination" and "asymmetric information" while the nongovernmental financing institutions (who are widely supposed as appropriate lenders for those privately-owned enterprises) are still much underdeveloped; for the other hand, the qualifications for an entry into the stock market are typically too strict for these privately-owned enterprises (plus the fact that the favor is often granted to those state-owned ones) , so for those middle-and-small-size enterprises, there is still a long way to go to have a stock market that can meet their specific financing needs. Even for the minority of these enterprises who are lucky enough to get listed in an overseas stock market, the actual costs of raising funds from the stock market is still relatively higher than that of obtaining loans from state banks on behalf of the state-owned enterprises. Basically, the middle...