The Study On The Relation Between The Product Market Competition And The Capital Structure Decision In China Companies

Traditional corporate finance theorists considered firms'liability and share rights problems under the assumption of the efficiency of capital market while ignoring the influence to the firms'finance behavior of the product market competition and the change of the finance condition in the capital market. Meanwhile, the relationship between capital structure decision and product market competition did also not call theorists'enough attention. However, a great deal of foreign literature in this field after 1980s when more and more behavioral finance and information asymmetries theory were applied to the study of the corporate finance implies that there exists a strong correlation between the product competition in the industrial organization theory and capital structure decision theory. In order to provide valuable advices about building more scientific and effective capital structure to firms and with focusing on the China's reality, this paper will try to correlate the industrial organization and capital structure theory and find out whether there exists a relation between product market competition and capital structure decision.The market economy institution of China is not sufficiently mature and for this reason the capital structure theory derived from western capital market reality cannot completely explain the change and determination of the firms'capital structure in the transitional countries. At the same time, by investigating the developmental process of the capital structure theory, we can conclude that the change of institution always bring a significant influence to the choice of capital structure and a mature theory must not be successfully applied to another economy with different economic institution. Thus, when studying the firms'capital structure of China, we must sufficiently consider the influence of the special institutional characteristics in Chinese economy to the capital structure.In the most important part of this paper, the part that is used to investigate the relation between the product market competition and the capital structure decision, we first analysis from the theoretical view the interactive relation between the product market competition and the capital structure decision and use the sequential game to...