Effect Of Market Timing On The Capital Structure

Presently, the real estate industry has already become the chinese economy, particularly pillar industry of the provincial economy. But it not only has serious bubbles, but also do harm to China's industrial structure. With the huge development of our country's economy, it has become an important question that how do the real estate companies maintain the best capital structure under the national macroeconomic regulation and control, how to guaranteed the smooth of the capital flow, what to do to maintain the healthy and stable development.As a focus in the area of business financial management, the theory of capital structure has always been improved and enriched. It begins with "MM" theory and then produces a lot of theories and opinions. As a result of the harsh hypothesis, traditional capital structure theory's explanatory power has been in question to some extent. To solve this problem, the Behavioral Finance theory was born. Then the capital structure theory on market timing was built too. This theory's birth opened a brand-new angle of view for capital structure's research. This paper applies the market timing theory to the real estate industry, to observe the effect that market timing to its capital structure. In the course of the research we take the interest rate as a proxy for market timing.In this paper, we trace the implications of equity market timing through to capital structure. I take the interest rate as the market timing signal, while the debt-to-assert ratio, the long-liability-with-interest ratio, the short-liability-with-interest ratio for capital structure. The paper chooses 82 real estate listed companies as samples and adopts Panel Data model to do empirical research according to the annual reports for 2005-2010. The empirical study results show that:the long interest rate and the short interest rate have no significant effect on the liabilities-assert ratio and the long-liabilities-with-interest ratio, while have a significant effect on the short-liabilities-with-interest ratio, but in very small extent. These companies'capital structure doesn't have high sensitivity to the interest rates which represent market timing. There are many reasons for this phenomenon, but most important reason I think is that the interest rate marketing reform is not mature.The paper concludes five parts. Part 1, introduction:background, objective, and significance of this research. Part 2 (chapter 2-4), theoretical studies:the theory of capital structure, market timing and interest rate. Part 3, status:the status of interest rate policy and capital structure of real estate listed companies. Part 4, empirical research. And Part 5, conclusion: the reasons for the results and recommendations for the continuing development.