Capital Structure Research: Based On Corporate Governance

Since the birth of MM theory, the capital structure theory of corporation has been one ofthe focuses of the field of economics. The early development of capital structure theory haveexperienced three stages: net profit theory, net business profit theory and traditional theory. Inthe modern corporate finance, the study of corporate financing behavior and capital structuremanagement begins with MM theory. But as we know, the capital market is not perfect. Manyeconomics make search on the precondition of MM theory, and continually put forthasymmetric information theory, right of control theory, strategic corporate and behavioralcorporate finance. According to modern capital structure theory, firms usually raise theirfinance in pecking order: internal equity financing, debt financing, and then external equityfinancing.Corporate governance is a emerging research field. Capital structure is more and moreimportant among the research of corporate governance, and it is decisive of corporategovernance structure, it not only decide the right of control of firms, also the purpose ofcorporate governance, the mode of corporate governance, and the result of corporategovernance. In all, there are two kinds of representative corporate governance theories: the"shareholder with sovereign right" theory in U.S.A, the "administrator leading" theory in Japan.Through study on capital structure of the two countries, it shows: the two countries have raisedtheir finance in pecking order.The listed companies in China have their unique characteristics: high level of currentliability, low level of long-term liability and to have obvious preference of equity financing,they show a totally opposite financing structure with the modern capital structure as a wholebecause of the factors of system and sectors in China. The capital structure in listed companyobstruct market and creditor to manage the firms, and it have caused the result: "internalperson" control the firms. In drawing lessons from the foreign empirical, fix attention onChinese actuality, I put forward suggestions for perfecting capital structure and corporategovernance: continue to reduce the state-owned equity, aggressively development institutionalinvestors and enterprise bond market, speed the commercial progress of state-owned bank,perfect bankrupt law, practice the system of management options, reform stock issue and listprice system and revise accounting system, choose capital structure according to differenthistory and sectors.