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 disscuss how improving capital structure influences firm performance.The study on listed companies is much more important than 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——communications and transportation industry for research.Modern theory of capital structure indicates that the change of capital structure has some impact in firm value and companies can benefit more from liabilities financing than from equity financing under efficient market. This paper is designed to find how capital structure of the sample companies affects their performance through empirical analysis. 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 ROE and the EVA per capital are used to describe the firm performance respectively. Firstly, the sectional data from 27 companies in communications and transportation industry, which are listed before 1999, are linearly regressed. We find their capital structure and firm performance are irrelated significantly. Then the section data are quadricly regressed, but the result is also disillusionary, which indicates that the capital structure of listed companies has not the best range only with the sectional data from 1999 to 2003. Finally, in allusion to the problems in the securities market and illogicality of the capital structure, we put forward some methods to optimize the capital structure for listed companies from four facts.