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Empirical Research On Speed And Approach Of Capital Structure Adjustment In Chinese Listed Companies

Posted on:2010-04-30Degree:DoctorType:Dissertation
Country:ChinaCandidate:H HuangFull Text:PDF
GTID:1119360275486679Subject:Business management
Abstract/Summary:PDF Full Text Request
Dynamic capital structure theory shows that target debt ratios varies as the change of macroeconomic and microeconomic condition, and firms deviate from their target debt ratio owing to information asymmetry and transaction costs, so firms need continually adjust their actual capital structure to their target as the change of economic condition. The capital structure adjustment of Chinese listed firms perhaps is different from developed country because of the special institutional environment. How about the adjustment speed? Which factors determine the adjustment speed? How about the adjustment approach and why we choose these adjustment approaches? Which adjustment approach portfolio can enhance financing efficiency and firm value? All these problems are open for theoretical analysis and empirical test.Based on the unbalance panel data of Chinese non-financial listed firms from 1997 to 2006, this article establishes a partial adjustment model to test the decisive factors which affect the adjustment speed of capital structure. The empirical results show that:(1) The adjustment speed calculated on market value is significantly positive related to the distance away from target capital structure, the growth and the scale of firms. The adjustment speed calculated on book value is negative related to the growth of firm, but not significant. The adjustment speed is not related to the firm reputation.(2) According to investment opportunity and solvency, the sample is classified into financially constrained firms and financially unconstrained firms, and the adjustment speed of financially unconstrained firms is faster than financially constrained firms.(3) According to the growth rate of GDP, the macroeconomic condition is classified into good, bad and middle. The adjustment speed under good macroeconomic condition is the fastest, and the adjustment speed calculated on book value is 0.679, that means firms take approximately 220 days to close half the gap between actual and target debt ratio.Based on the balance panel data of Chinese non-financial listed firms from 2002 to 2005, this article analyzes the factors affecting the adjustment approach of capital structure and the adjustment efficiency. According to the balance sheet this article divides the adjustment approach into commercial credit, short-term debt, long-term debt, issuing shares and retained earnings. The empirical results show that:(1) The adjustment approach by long-term debt is significantly positive related to tangibility of the asset. The adjustment approach by internal financing is significantly positive related to profitability. The adjustment approach by internal financing is significantly negative related to the growth, and the adjustment approach by long-term and short-term debt is signifieantly positive related to the firms with better growth and financially unconstrained. The adjustment approach by commercial credit is signifieantly positive related to the firm reputation, and the adjustment approach by issuing shares is significantly positive related to the firms with state-controlled shares and a higher degree of ownership concentration. The adjustment approach by long-term debt is signifieantly positive related to firms with a strong government intervention in business.(2) Though some factors preference some adjustment approaches, this approach preference not always enhance financing efficiency because of manager's personal benefit. The same adjustment approach has different function and effect under different conditions, so firms need design their own portfolio of adjustment approach to optimize capital structure and enhance firm value.This article also analyzes the capital structure of Chinese listed firms from the development trend, industry characteristic, regional differences and the similarities and difference of capital structure between China and western countries. Based on the empirical result of adjustment speed and adjustment approach, this article put forward some measures with Chinese characteristic in managing and optimizing capital structure. This study is help for some firm to establish the dynamic optimization mechanism of capital structure and design the corporate governance structure; some empirical results provide suggestions for government and other management departments in setting up relevant policies.This article has the following innovations and improvements:(1) This article constructs a multi-level, dynamic and two-way capital structure adjustment model. The target capital structure decision model contains institutional and corporate governance factors. The adjustment speed is a dynamic variable with time and firm characteristics in the capital structure adjustment model. Taking into account the financial constraint and macroeconomic condition, this article analyzes their direct effect and the indirect effect through firm characteristics on the speed of adjustment.(2) This article solves the endogeneity and serial correlation problems of capital structure adjustment model which are not availably deal with in foregoing literature. The decisive factors of target capital structure are endogenized into the partial adjustment capital structure model and the empirical results can be directly gained in one step. The GMM and the first-difference transformation applied to model estimate in this article effectively avoid some collinearity, heteroscedasticity and serial correlation.(3) This article analyzes the financing efficiency of the adjustment approach choice. On the basis of qualitative description of the financing efficiency, this article measure financing efficiency from financing cost and financing risk, which is used in efficiency analysis on adjustment approach or adjustment approach portfolio.
Keywords/Search Tags:Dynamic Capital Structure, Partial Adjustment Model, Panel Data, Generalized Method of Moments, Adjustment Speed, Adjustment Approach Choice, Enterprise Financing Efficiency
PDF Full Text Request
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