Analysis On Capital Structure Determinants Of Chinese Transnational Corporation

Since Modigliania and Miller published the Theory of Capital Structure in 1958, people begin to acknowledge the virtual meaning of the capital structure. However, with the development of economics growth, such as economics globalization and capitalization, the theory of capital structure is becoming more and more complicated. Among them, the analysis on capital structure of transnational corporation has been paid attention to widely. Previous theories on capital structure of transnational corporation paid more attention to analyze the capital structure of American firms. Until 1970's, with the development of Japanese and European transnational corporations, many scholars began to analyze the capital structure of Japanese and European transnational corporations. With the development of transnational corporations in developing countries, transnational business has become a global trend. Scholars from western countries try to set up a theory that fits any counties. However, for developing countries, the status of economics has changed constantly, the conditions for transnational corporations are changing. It is impossible to set up a theory that can be used by all the countries. Regarding the research of our country in this field is almost blank, so, referring the current experiences of our country, looking for a generalized rule and summarizing the capital structure effect factors on our country's transnational corporations are very meaningful innovation work. This article uses for reference the theory basis from foreign research results, analyzing our country's transnational corporations, and systematically arguing the status of capital structure of transnational corporations in our country. Then this article analyzes the effect factors of our country's transnational corporations. This article expatiates the common effect factors from theory aspect. American scholar S.Hymer and Kindleberger (1960) looks forward the Theory of monopoly advantages which means that transnational corporations have monopoly advantages. This kind of monopoly advantages makes transnational corporations acquire lower capital cost when making liability financing. This will reduce the expected bankruptcy cost of transnational corporations. Vernon Smith formulated the products life cycle theory in 1996. This theory indicates that transnational corporations engaged in direct investing is a processing within the life cycle of the products. When a corporation turns to a transnational corporation, it is in the phase of the mature period of products. In this period, transnational corporations need a high capital, thus will keep a high liability level. In 1976, English scholars Buckley and Casson provided the internalization theory. This theory recognizes that transnational corporations that have senior money advantagecan require lower financing rate in the finance market. The scholar in Liting University J·H·Dunning, provided eclecticism theory in 1977. This theory recognizes that transnational corporations should balance its advantage of ownership, internalization and geography to optimize its capital structure. In order to analyzing the differences between the transnational corporations and the domestic corporations, we assume that the transnational corporations and domestic corporations have differences. This article chooses 16 transnational corporations in China with the period from January 1, 2000 to December 31, 2003. Additionally, we also choose 16 domestic corporations that have the same size and in the same industry as those transnational corporations with the period from January 1, 2000 to December 31, 2003. We use the data of transnational corporations and domestic corporations to process the paired-sample t test. The result of the test proves that the liability level of the transnational corporations is higher than that of the domestic corporations. With the combination of the conditions in our country, this article will analyze the factors that affect the differences of the capital structure for transnational corporations and domestic corporations. We conclude that the factors affect the capital structure of the transnational corporations can be generalized to common determinations and special determinants. For common determinations, these factors can be generalized to two kinds.The first kind of factors relate to the corporations themselves, including the scale of sales growth, the stability of the growth, the attitudes of the shareholders and managers; the second kind of factors relate to the degree of the competition in the industry, the signal effect of the changed capital structure, the attitudes of the creditors and etc. For special determinants, we generalized them to three kinds. The first one is related to the tax effect. Transnational corporations have tax savings using liability financial methods. Transnational corporations can take advantage of the different tax rates of different countries to avoid taxes. Thus, from the tax aspect, liability financing is better than issuing shares for transnational corporations. The second one is related to the host countries. In order to avoid the critics of the host country and in order to easily set up some agreements; the host country largely affects the capital structure of the transnational corporations. To our Chinese transnational corporations, the liability levels in host countries are larger than that of ours, thus, the Chinese transnational corporations incline to a higher liability level. The third one is related to the degree of the internationalization. The larger the degree of the internationalization, the lower the liability financing cost and the bankruptcy cost. Transnational corporations can take the advantage of international producing to avoid the limitation of the scalability benefit. Scalability benefit can make transnational corporations reduce their bankruptcy...