The Relativity Analysis On Capital Structure And Firm Performance

Capital structure is worthy of study for its great theoretical and practical value. It is very necessary to discuss how improving capital structure influences firm performance.The study on listed companies is much more important than that on non-listed companies since the operation and management of listed companies are more standardized according to theory of capital structure and capital of them comes from the capital market. To eliminate the influence from industry classification on capital structure and make performance of variable companies comparable we choose only one industry-electric power industry for research.Modern theory of capital structure indicates that the change of capital structure has some impact on firm value and companies can benefit more from liabilities financing than from equity financing under efficient market. Capital structure of listed companies from developed countries has testified this. This paper is designed to find how capital structure of the sample companies affects their performance through empirical analysis. We also want to check the view that capital structure and firm performance are positively related in a definitely range. Maybe it can reflect the degree of maturity and efficiency of our security market.The rate of debts is used to describe the capital structure and the EVA per capital is used to describe the firm performance. The sectional data from 30 companies in electric power industry, which are listed before 1998, are regressed. We find their capital structure and firm performance have positive relation significantly. This conclusion is exactly consistent with that of Masulis drawn in 1983.Finally we suggest those companies with poor performance should improve their capital structure. We also put forward some methods to optimize the capital structure for listed companies from the standpoint of government and listed companies themselves.