Dynamic Adjustment Of Corporate Capital Structure In Transition Economy And Empirical Study

This paper focused on the rationalization of corporate financing decision making in the process of the reconstruction of micro foundations in Chinese corporations and the deregulation of capital market. We look at the fact that the capital structure in China is gradually stabilizing in an innovative way, which is the volatility of the leverage ratio, and use the partial adjustment of capital structure model to analyze the dynamic panel data of Chinese listed corporations from 1993 to 2009. According to the empirical results, we conclude that trade-off theory, pecking order theory and market timing theory, those give the different reasons to the changes and adjustments of capital structure, can be included in the "general version of trade-off theory" and that the stable target leverage ratio and the decreasing volatility of deviation from the last period's leverage ratio are the main reasons to why leverage ratio converges and we would also endogenize the adjustment speed to expand the model to further test the conclusion, only to find that the deviation between the target and the present leverage, material controlling party of the corporation, share concentration, size of the board and changes in management will influence the adjustment speed of capital structure. The speeding up of leverage adjustment gives some evidence that the continued rationalization of financing in corporations in transition periods stabilize the capital structure.