The Effect Of Capital Structure Heterogeneity,Technological Innovation On Corporate Performance

Innovation is the first incentive for development and provides important support to build a modern economic system,according to the report of the 19th National Congress of the CPC.On March 11th,The National People’s Congress adopted the 14th Five-Year Plan(FYP)and made it clear to support the development of innovative small and medium-sized enterprises(SMEs)through the diversified investment,and encouraged SMEs to gradually establish a sustained and stable investment mechanisms for technological innovation.But compared with its huge scale,China’s SMEs still have a serious problem of insufficient investment in technological innovation.At the same time,the external financing environment for SMEs is not optimistic due to the scale restrictions.Specifically,on the capital supply side,China’s financial system is still dominated by state-owned large commercial banks,this situation will be detrimental to the SMEs’financing.SMEs are also facing fierce competition from local governments and state-owned enterprises on the capital demand side.The decision-making of capital structure also needs to be further optimized.In addition,problems such as ownership concentration,resource waste,principal-agent problems and information asymmetry caused by the unreasonable capital structure of SMEs have also restricted technological innovation.In practice,managers of SMEs are also extremely concerned about this issue.They hope to implement technological innovation after estimating their ability and resources on the basis of controllable risk factors and capital structural analysis,spend the money where it counts the most.There are already quite a lot of papers pay attention to the impact of capital structure,technological innovation and performance,but many papers make homogenization assumptions on debt,equity and financial slack,which hinders the understanding of embedded capital structure.understanding of the interaction between different debt,equity,and financial slack.In fact,heterogeneity should not be confined between financial resources,but should extend within resources.At the same time,the selective focus of existing research on some elements of capital structure weakens the connection between management theory and practice,and some management literature ignores the governance impact of structural heterogeneity,which will greatly affect the effect of theoretical research applied to management practice.In this context,this paper is focusing on the core issues of "how does capital structure heterogeneity improve performance through innovation".First,this paper combs and reviews relevant theoretical literature on capital structure,open innovations,R&D ambidexterity switch and so on.And based on these results,the follow-up research framework of this paper is designed.Second,this paper uses research methods such as mediator effect and moderating effect,DIFF-GMM estimation,instrumental variable estimation,and propensity score matching to explore the impact of capital structure heterogeneity on technological innovation and its performance.Finally,this paper conducts a field survey by interviews and questionnaires of four local enterprises,and explores the capital structure,technological innovation and performance of these manufacturing enterprises,which were listed on the SME Board and based on these research conclusions,provide related proposal and enlightenment.This paper adopts the "Structure-Conduct-Performance"(SCP)paradigm to deeply analyze the internal relationship between capital structure heterogeneity,technological innovation strategy and firm performance,and further widen the research scope on capital structure heterogeneity.Firstly,it considers the impact of the heterogeneity of patience and slack of capital structure on enterprise performance,and how to choose technological innovation strategies accordingly to improve performance.Then,based on a dynamic perspective,the relationship between capital structure optimization and technological innovation strategy selection is analyzed.Beginning with these actual management problems of SMEs,this paper focuses on the allocation of technological innovation investment.On the one hand,this paper considers the horizontal allocation of investment between internal R&D and external technology mergers and acquisitions.On the other hand,this paper considers the vertical allocation of investment in the transition process between exploratory innovation and exploitative innovation.This paper puts forward each type of capital structure heterogeneity and chooses the correspondent or appropriate technological innovation strategy,constructs a mediator effect and moderating effect model to analyze the internal relationship among between the capital structure,technological innovation and firm performance.Based on theoretical and empirical analysis,this paper draws the following main conclusions:(1)About capital structure heterogeneity and firm performance:First,patient capital usually has more tolerance for risk and cares about long-term earnings.The capital structure where the patient capital accounts for a relatively high proportion is conducive promoting firm performance.For SME Board listed firms,relationship debt has a greater impact on firm performance than stable equity.However,the field research finds that the role of relational debt has decreased in the past three years.Second,the financial slack has a non-linear relationship with firm performance.Available financial slack and firm performance are inverted U-shaped related,and potential financial slack,as an important potential resource of a firm,has a U-shaped relationship with firm performance.Finally,based on a dynamic perspective,this paper calculates the optimal value of the capital structure of SME Board listed firms based on firm performance and other related financial metrics,and finds that the average speed of leverage adjustment of SMEs in China is slow,and most SMEs maintain lower leverage in daily operation and management.(2)About capital structure heterogeneity,technological innovation and firm performance:SME Board listed firms tend to implement technological innovation by internal R&D and improve their competitiveness by their continuous investment in R&D.In a static situation,internal R&D plays an intermediary role between relationship debt and firm performance,while external technology mergers and acquisitions play a positive significant mediating role between stable equity and firm performance.Under the dynamic situation,external technology mergers and acquisitions are significantly positively correlated with the speed of leverage adjustment.and these positive effects are more significant in younger firms and the firms with weaker financing constraints.(3)About capital structure heterogeneity,innovation ambidexterity switch and firm performance:Currently,the available financial slack of SME Board listed firms has been decreasing over time,while the potential financial slack has been increasing.The empirical results show that sufficient available financial slack benefits SMEs to switch to exploratory innovation.Firms have the opportunity to improve their performance through this disruptive technological innovation,and it has been recognized by enterprise managers in field research.While the potential financial slack doesn’t have moderating effect between capital structure and firm performance,and the effect is limited in practical.In addition,if SMEs keep a large amount of available financial slack and switch to exploitative innovation,then the available financial slack will have a negative moderating effect,which is unfavorable for firm performance.In the process of dynamic adjustment of capital structure,structure and conduct often have an effect on each other.Especially,for small-scale firms,mature firms,private firms and the firms with severely financing constraints,they should be cautious about switching to exploratory innovation,and do not eager for quick success,otherwise they may deteriorate the capital structure and decrease firm performance.This paper affirms the feasibility of companies using relational debt to invest in R&D,and emphasizes that the investment in external technology M&A must be cautious enough and try to introduce venture capital to share risks.When the enterprise has sufficient available financial slack,it should stimulate R&D investment.It may take 1-2 years to improve the performance,but the effect is very obvious.Enterprises should also maintain a leverage ratio slightly lower than the optimal capital structure,and expand the channels to increase the speed of adjustment,and avoid large-scale,leap-forward investment in technological innovation when the leverage ratio is already higher than the optimal rate.These conclusions and achievements of this paper have important implications for enriching the theoretical research on capital structure heterogeneity and technological innovation strategy,the analysis of the interrelation between capital structure and innovation behavior for SMEs in China,better use of recapitalization and choosing appropriate innovation behavior to improve performance and the formation of core competitive advantages.It has a strong reference value for promoting technological innovation consciousness and bolster the sustainable development of SMEs.