Capital Structure And Value Creation Of Chinese Listing Companies--An Analysis Based On Shareholder Structure

In the last half of century, the capital market has been becoming the core of the financial system and the whole economy; at the same time, the importance of corporate capital structure made it one the focuses in the field of modern finance. The value-added of listing companies is foundation of the development of capital market. Hence, it's not only important in theory, but also in practice for us to choose "capital structure" and "value creation" of China's listing companies as the topic of this research.In the first chapter, this paper summarizes the capital structure theories and briefs the developing countries' related studies. Since the establishment of M-M theory, many researchers study the relationship between capital structure and corporate value-added through relaxing its assumption. The results of the studies show that the corporate capital structure can influence its market value in three aspects: incentive mechanism, information transferring and allocation and shifting of the controlling power. However, The study on China's listing companies get some results that can't be explained by capital structure theory. Under the circumstances that the value of China's listing companies has been impaired continuously for several years, a question was bring to us that why the capital structure didn't improve the corporate value-added as describe in the theories. This paper will analyze the problem from the point of view of special shareholders structure of China's listing companies.This paper firstly describes the capital structure and shareholders structure of China's listing companies in the second chapter. The China's listing companies' common shares can be divided into tradable shares and un-tradable shares, and most of controlling shareholders hold state-owned share and legal person shares that both are un-tradable. The distinction between shares made different shareholders has different value-orientation. Due to "agent shareholder" actually controlled the listingcompanies, they made the companies' objective deviated from maximizing corporate value-added to maximizing their own interests.Based on above analysis, the paper study the China's listing companies' capital structure and corporate value from the three aspects respectively. From the angel of incentive mechanism, the low proportion of share hold by managers and "soft restriction" of debt made the mechanism ineffective, which reduce the agent cost occurred between shareholders and managers by increasing the financial leverage. From the angel of information transferring, because the inefficiency of security market made the way of company's financing can't transfer information of its value-added to investors, the controlling shareholder choose equity financing to improve their own interests and the value of company was impaired. From the angel of allocation and shifting of the controlling power, the imperfect bankruptcy law and government administrative intervention obstruct the transfer of controlling power to creditor under bankruptcy; at the same time, most M&A transfer controlling power through agreement or without compensation due to un-tradable state-owned shares; so neither bankruptcy nor M&A influence corporate value-added positively. In the third Chapter, empirical studies were conducted on the capital structure and corporate value-added of China's state-owned and private listing companies separately. The conclusion was drawn that state-owned listing companies deviated from maximizing value-added and the determination of their capital structure is significantly affected by governments administrative intervention and other institutional factors, so it didn't function to maximize corporate value-add and the value of listing companies declined continuously.Finally, this paper offers several proposals for the China's listing companies and capital market.