Research On Institution Environment, Capital Structure Adjustment And Cost Of Capital

The dynamic trade-off theory argues that firms do have a target capital structure. However, in the process of production and operation, the capital structure decision is not completely follow the "value maximization" Principle. This will lead to the current firm’s capital structure diverges to it target, In order to improve the enterprise value and future business conditions, they are keeping firms from reaching their target structure. How to maximization of firm value and minimum of cost of capital, it is arguably the core of modem financial management. But China is country of emerging and transition economies. The government plays an important role in market improvement and resources allocated. It has lead to a phenomenon that capital structure will not complete in accordance with the principle of cost benefit analysis, will lead to behavior distortion of financing decisions, and will absorb a large unreasonable amount of money. Therefore, research on institution environment influence firm’s capital structure adjustment and follow the economic consequences is very necessary.On the basis of literature review of related research fruits home and board, and under the analysis framework of dynamic trade-off theory, this paper use of the latest research fruits in modern economics, such as stakeholder theory, New Institution Economic theory. Following the research clue of "theoretical analysis—empirical analysis—countermeasure research", this paper makes deepened research on the subject of selected topic. Firstly, review related research. Second, this paper establishes the analysis framework of capital structure adjustment based on institution environment. Model is constructed to test the influence of Chinese listed firm capital structure adjustment on institution factors. Currently, Most of scholars select adjusting speed as the measure method of the target capital structure. Using the data from the Chinese listed companies, this article is empirical test the relationship between the institutional factors and capital structure adjustment. Furthermore, it is research on the economic consequences of the capital structure adjustment.The research result of this paper in the following three aspects. One is to analyze the institution factors influence firm’s capital structure adjustment. Institution factors affects capital structure choice are not ignored element on the financial decision. However, it has different effect on adjustment cost. Firm’s external factors on the adjustment costs can have a significant impact, while internal institutional factors influence is not obvious. Second is to build appropriately empirical model to test the influence of Chinese listed firm capital structure adjustment on institution factors. Base on the current situation of Chinese listed firm, the data was divided into two parts which proprietary right and region. The empirical studies support: proprietary right and region will not effect the firm capital structure adjustment. Thirdly is to extend the economic consequence of capital structure adjustment. The relationship between adjustment cost and cost of capital was support by empirical result.