The Empirical Study On Correlation Between The Capital Structure And Firm Performance Of The Listed Companies In China

Capital is the foundation on which the enterprises can survive and develop. Whether the capital structure is rational or not will influence the quality of the enterprises'capital. Capital theory is studying the influence of the change of debt and assets to the enterprise's fair value and the existence of the best capital structure. The theory influence not only capital cost and the total value of the company, but also the government structure of the enterprise and the manager's behavior, and then influence an area or a country's economic growth and stabilize the capital structure of the listed company, which directly effect the advance of the quality and the investing value of the listed company, and then build up the investor's confidence and promote the healthy development of the security market.The Scholars both demestic and abroad has done research of the relationship of capital structure and enterprise's performance. And they have educed two contrary conclusions. One is that the capital structure has a positive relationship with the performance, which means the debt radio has a positive relationship with the company's performance. Another is that the capital structure has a negative relationship with the performance, which means the debt radio has a negative relationship with the company's performance. These two differently conclusions make the people confused.Our stock market has achieved the efficiency these years, so it is necessary for us to study the relationship of the capital structure and the performance.This paper test the hypothesis with the data from 2002-2005 which contains the 1055 company. Using empirical method, I build up the regression model and logistic model to analysis the issue. And the logistic model is a innovation of this paper.This paper contains 5 parts.In section 1, this paper put forward the background and purpose of the study.In section 2, this paper introduces the important theories that has been studied by the predecessors and has a systematic review of the predecessors.In section 3, this paper has an analysis of the issue mainly using the agent theory that has been put forward by Jensen and Meckling. And this paper analyses this issue from the view of creditor's rights structure and shareholder's rights including the influence of the capital structure to the corporate government structure.In section 4, this section is the empirical analyses of this paper.Firstly, this paper put forward the hypothesis in our country.1. State-owned stocks have a positive relationship with the performance.2. Circulating stocks have a negative relationship with the performance.3. The quantity of the share of the largest shareholder has a positive relationship with the performance.4. If the type of largest shareholder's stocks is the state-owned, then it has a negative relationship with the performance.5. The debt ratio of the listed company has a positive relationship with the performance.In this paper, the performance ratio concludes Tobin's Q and ROA. The capital structure ratio concludes state-owned stock's ratio, circulating stock's ratio, the quantity of the largest shareholder's stock's ratio, and the quality of the largest shareholder's stocks. The controlling ratio concludes the scale, lever coefficient, and growth.The model is: corporate performance=f(state-owned stocks ratio, circulating stock ratio, the largest shareholder's stock's ratio, the quality ofthe largest shareholder, the debt ratio)+g(size, lever coefficient, growth )+εWhen using the regression method, this paper builds up several models as following:1. The paper sets up two models according to Tobin's Q and ROA separately in overall sample and analyzes the overall sample.2. And then divided all samples into 2002-2005 and analyzed the annual situation separately.3. Divide the total sample into sample 1 and sample 2 according to ROA, sample 1 stands for the companies that have relatively good performance and sample 2 stands for the company that have relatively poor performance, analyze two kinds of situations. 4. This paper defines the company which company's ROA>=5% as 1, and the company whose company's ROA<5% as 0. Then set up a Logistic regression model to analyze.5. In order to investigate the two-way mutual relation of capital structure and performance, we regard debt ratio as the variable explained, other variables are an independent variable, analyze it.The conclusions:1. On the capital structure of the listed company of our country, the structure of stock right is unreasonable. The proportion of circulating stocks is too small that it doesn't reach 40%. Its mean value has not been up to 40% yet, this makes the controlling market didn't play role in the corporate government.2. The largest shareholder has not played a positive role to a certain extent. Maybe this is because the largest shareholder occupies company's assets for one's own profits, which increased the financial risk of the listed company and business risk greatly, and thus influence the performance.3. The state-owned stock still plays a positive role in the capital market in our country at present. However, if the largest shareholder is the state, it will play a negative role to the performance,4. Additionally, according to the result that has obtained, the negative relationship of the debt ratio and ROA is mutual. So, this means the debt hasn't play a positive role in the listed company of our country, and the bankrupt system still remains to be improved.Section 5 is a conclusion part. In this section the paper propose some policy recommendations.1. The state-owned stock still plays a positive role to a certain extent. However, if the largest shareholder is the state, it will play a negative role to the performance, so the reduction of the state-owned stock should be treated with certain discrimination according to the proportion of the state-owned stock. And we should pay our attention to the company whose largest shareholder is the state.2. Expand circulating stock proportion progressively, ensure the circulate shareholder's rights and interests in law. For example, to enact a law that makes the minority stock holder participate in the government system by consulting enterprise's account book3. Make full use of the largest shareholder's role in the corporate government .make sure the minority stock holder's rights and interests can get rational protection. Promote the development of capital market while ensuring.4. Set up and amplify enterprise's bankrupt mechanism. The debt financing of the listed company of our country can't play a role in improving enterprise's performance. When the debt ratio will drop, the performance of the company will increase. This is inevitable because of the imperfect of t economic system of our country .So we should really implement"the bankruptcy law"in our country to pursue the bankrupt mechanism and set up the rational and fair competitive environment of market.