A Study On Determinants Of Capital Structure

Capital structure theory is always one of the most controversial issues in finance.Myers (1984) in his paper "The Capital Structure Puzzle" pointed out, "How dofirms choose their capital structures? we don't know....... We know little about capitalstructure. We do not know how firms choose the debt, equity or hybrid securities they issue."The puzzle of determinants of capital structures for Chinese listed companies is "tougher". Given the special institutional environment such as unique ownership structure, imperfect legal protection to investors, unbalanced development of capital market and defective corporate governance mechanism etc, what factors should be responsible for the choice of capital structures of Chinese listed companies? Can western capital structure theory be used to explain financing ways of Chinese listed companies? How doses institutional environment affect capital structure choice through firm characteristics? Can macro-economy and industry factors significantly influence capital structure choice? All the above problems are open for theoretical analysis and empirical test.Based on reviewing relevant literatures, the author finds that there are some problems existing in studying the determinants of capital structures of Chinese listed companies. First, most researchers adopted "snapshot" framed static state regression technique to study the cross sectional determinants of capital structure. However, the nature of capital structure is dynamic, it should be analyzed in a dynamic framework. Second, time-specific factors are omitted, such as interest rate, inflation and other macroeconomic factors that are observable or unobservable. Third, unobservable firm-specific factors are omitted, such as, managerial ability, motivation and attitude toward risk. Fourth, there is not theoretical and empirical analysis of how corporate governance affecting capital structure choice, such as ownership structure, governance of board of directors, CEO tenure, market for corporate control, legal environment etc. Finally, institutional environment of Chinese listed companies' capital structures has not yet been deeply studied.Therefore, the dissertation concentrates on studying the determinants of capitalstructures of Chinese listed companies and investigates their financing ways or their preferences. First, the author constructs a two-way effects dynamic model, and studies how firm characteristics (including: firm size, asset structure, non-debt tax shields, effective tax ratio, growth opportunity, liquidity, uniqueness of the products, financial distress cost and the capacity to generate internal resources) affect the choice of capital structures of Chinese listed companies from a dynamic perspective for the first time by controlling time-specific effects and unobservable firm-specific effects. Then, the author applies factor analysis model to analyze how corporate governance structure affects capital structure choice. The whole dissertation is divided into eight chapters.Chapter 1 .Introduction.This chapter discusses about background, incentives, underlying theories, main content, methodology and framework. Definitions of relevant terms, improvements and innovations are also given.Chapter 2, Review of capital structure theory. This chapter emphatically introduces to static trade-off theory, agency theory, information asymmetry theory, corporate control theory, and market timing theory etc, with the aim of providing theoretical basis for analyzing the determinants of capital structures of Chinese listed companies.Chapter 3, Review of empirical literatures on the determinants of capital structure. The chapter reviews empirical literatures on the determinants of capital structure home and abroad, comments on the extant literatures, and provides foundation to define relevant variables.Chapter 4, Analysis of institutional background of capital structures of Chinese listed companies. This chapter analyzes institutional background of capital structures of Chinese listed companies so as to provide rea...