Empirical Research On The Capital Structure Of Agriculture Listed Companies In China

Agriculture is the primary industry in China. Agricultural listed companies represent the advanced agricultural productivity of our country at the present stage and shoulder the responsibility to fuel the economic development of the agricultural sector. At present, there is strong preference towards stock ownership in financing method existing in our agricultural listed companies, which seriously impedes their virtuous development. As China entering the WTO, more and more international agricultural companies with substantial capital and management expertise get access to the Chinese market. Under this circumstance, how to optimize the capital structure of chinese agricultural listed companies, how to increase their value and how to improve the international competence of them, even that of the agriculture sector as whole become urgent problems to solve.This thesis combines the foreign theories about financing structure and the practice of our agricultural listed companies in this respect, analyzes the main factors that affect agricultural listed companies with statistical analysis , and explores the conceptions and measures to optimize the capital structure of chinese agricultural listed companies. I hope that this thesis could be helpful for the agricultural listed companies to improve their operation performance, optimize their governance structure and maximize the companies'value.This thesis investigates 41 agricultural listed companies in China in 2005 and concludes that:First, the capital structure of agricultural listed companies in China has nothing to do with their assets structure, tax and growth. The asset-liability ratio is inversely proportional to the holding ratio of top management and the profit earning capacity of the company. Any increase in the holding ratio of top management and the profit earning capacity of the company will lead to decrease in the asset-liability ratio.Second, the practice of capital structure by our agricultural listed companies strongly supports the trade off theory .There is existence of target capital structure in chinese agricultural listed companies. Due to the low income tax rate of agricultural listed companies, tax cannot be avoided by debts. Agricultural listed companies with high profits prefer equity financing.Third, the practice of capital structure by our agricultural listed companies supports the free cash flow theory.Managers of agricultural listed companies prefer the free cash flow theory and equity financing.This thesis points out that the current policies which are intended to foster agriculture, the policy of income tax rebate in particular, have some negative effect on the financing and operation performance of agricultural listed companies, as well as the practice of partially borrowing the foreign incentive mechanism of stock options for managers. Hence, to cling to market-orientation, adjust the relation between government and agricultural listed companies, further implement agriculture-fostering policies, and establish comprehensive and diversified mechanism of incentive and restraining for managers are the fundamental ways to optimize the financing structure of agricultural listed companies.