Ultimate Control,Market Mechanism And Capital Structure Adjustment

Dynamic capital structure theory shows that target debt ratios varies as the change of macroeconomic and microeconomic condition, and firms deviate from their target debtratio owing to information asymmetry and transaction costs, so firms need continually adjust their actual capital structure to their target as the change of economic condition. The capital structure adjustment of Chinese listed firms perhaps is different from developed country because of the special institutional environment. How about the adjustment speed? Which factors determine the adjustment speed? How about the adjustment approach and why we choose these adjustment approaches? Which adjustment approach portfolio canenhance financing effciency and firm value? All these problems are open for theoretical analysis and empirical test.Based on the unbalance panel data of Chinese non-financial listed firms from 1997 to 2006, this article establishes a partial adjustment model to test the decisive factors which affect the adjustment speed of capital structure.The empirical results show that: (1) The adjustment speed calculated on market value is significntly positive related to the distance away from target capital structure,the growth and the scale of firms. Theadjustment speed calculated on book value is negative related to the growth of firm,but not significant.The adjustment speed is not related to the firm reputation. (2) According to investment opportunity and solvency, the sample is classified into financially constrained firms and financially unconstrained firms, and the adjustment speed of financially unconstrained firms is faster than financially constrained firms.