Study On Industrial Environment, Innovation Strategy And Capital Structure Of Listed Companies

Capital structure seems simply to be the proportion of capital and debt, but it virtually decides system arrangement: the relationship among the owners of principal and nexus relationship between owners of principal and other owners. Then how to select capital structure is one of the most important decisions for firms. Since Modigliani and Miller (1958) proposed the theory of capital structure, scholars have established and improved a lot of theories about capital structure. But in practice, some issues such as: how to select between debt financing and stock financing and how many elements influence capital structure are very difficult to answer.From conclusions of domestic and foreign literatures, we know that capital structure is a kind of rational choice, which is based on corporate strategy and environment. But there is no consistent conclusion about the relationship among environment, strategy and capital structure. Chinese firms are faced with environment which is more dynamic and special. So the processes of strategy management and capital structure decision will be much more complex in this environment. We should go deep into research about the relationship among environment, strategy and capital structure, combine capital structure decision and strategy management and apply it in practice better, thus to provide theory guide and reference for firms. According to strategy management's study model, from finance theory and strategy management standpoint, this paper discusses the following issues: how the strategic element impact on capital structure and firm's capital structure must be aligned with the strategic element, and that this alignment or match has performance implications. This kind of study can help to disclose the real causes of formation of capital structure; help to disclose the truth of environment and capital structure impact performance; help to disclose the truth of strategy and capital structure impact on performance; help to hold the essence of finance behaviour and strategy behaviour of Chinese firms, then optimize resources deployment and promote the development of Chinese firms.This paper adopts the following study paradigm: theoretical analysis—hypothesis—data support—empirical test—conclusion. At first, this paper studies on the relationship among industrial environment, capital structure and corporate performance through establishing multi-linear regression model, this study establishes the better foundation for the continuous study. This study shows that industrial environment is an important element which influences on the capital structure. Firm's capital structure must be aligned with the industrial environment and this alignment or match has performance implications. The efficiency of corporate governance which is centered by stock owner is higher than which is centered by debt owner under stable industrial environment and conclusion is reverse under dynamic industrial environment. So the most important task for managers is to select capital structure which must be aligned with its industrial environment to guarantee firm survival in competitive environment.Second, this paper investigates how innovation strategy impact on capital structure and how innovation strategy and capital structure impact on performance. This study shows that innovation strategy is an important element which influences on the capital structure, firm's capital structure must be aligned with innovation strategy, and that this alignment or match has performance implications. The more heavily a firm's strategy emphasizes innovation, the higher financial slack (it means the lower leverage ratio) will be, to guarantee persistent investment on research and development, to guarantee investment on marketing extend of new product, and to help to imply purchasing project. If the more heavily a firm's strategy emphasizes innovation, the higher its leverage ratio will be which will damage its performance.Finally, this paper investigates the relationship among industrial environment, innovation strategy and capital structure in a uniform frame. This paper expects to test the relationship between innovation strategy and capital structure under different industrial environment according to agency theory, transaction cost economics and strategy management theory, establishing multi-linear regression models which use interact variable. This study shows that industrial environment and innovation strategy are important elements which have influence on the capital structure, and the interact impact of industrial environment and innovation strategy on capital structure is very important too. There will be positive correlation between innovation strategy and capital structure under stable industrial environment; there will be negative correlation between innovation strategy and capital structure under dynamic industrial environment. It means that the more heavily a firm's strategy emphasizes innovation, the lower leverage ratio there will be. Capital structure decision must be aligned with its industrial environment and innovation strategy.Empirical analysis shows that innovation strategy does not take industrial environment into consideration and shows that there will be positive correlation between capital structure and innovation strategy under stable industrial environment. It means that high leverage will be helpful to implement innovation strategy; there will be negative correlation between capital structure and innovation strategy under dynamic industrial environment, it means that low leverage will be helpful to implement innovation strategy. According to these main research contents, the creative points include: 1. New research data. This paper uses sample data from 2001-2005 of Chinese listed company, the quantities of data is sufficient and data is new for research.2. Creative research indicators. This paper uses different indicators and indicator calculating methods to finish the studies to avoid the research errors using simple research indicator, which ensure that the research results are scientific and efficient. This paper adopts three dimensions: resource abundance, complexity and dynamism to measure industrial environment. Then we can analyze how industrial environment impacts on capital structure from different point of view and reflect the real condition of that. In addition, this paper also uses two indicators to measure innovation strategy to investigate how innovation strategy impact on capital structure.3. Detailed research. This paper divides industrial environment into stable group and dynamic group according to certain standards to investigate how industrial environment and capital structure's alignment impact on performance. In addition, this paper investigates the relationship among industrial environment, innovation strategy and capital structure in a uniform frame and tests the relationship between innovation strategy and capital structure under different industrial environment according to agency theory, transaction cost economics and strategy management theory.