The Research On Optimal Debt Maturity Structure Based On Fixed Effect Model

According to modern capital structure theory, financial decision indeed influences firm value under imperfect capital market. Enterprise's optimal capital structure not only refers to the liability ratio, but also the internal structure of liability, especially debt maturity structure. The optimal debt maturity structure can minimize the sum of explicit costs and implicit costs of debt financing, thus enhance firm value.This paper divides those influences the costs of debt financing into five factors based on modern capital structure theory. They are fund cost, agency cost, transaction cost, financial distress cost and tax shield revenue. This paper sets up the theoretic model of debt financing cost and analyzes the relationship between debt maturity structure and these five factors. It argues the nonlinear relationship between debt financing cost(or firm value) and debt maturity structure theoretically. Using the balance panel data of 570 A-share companies that were listed on Shanghai Stock Exchange during 2003-2005, this paper establishes fixed effect regression model and provides an empirical examination on the relationship between firm value and debt maturity structure by choosing long-term debt ratio as a proxy of debt maturity structure. The main conclusions are shown as follows:(1) There is a converse U curve between long-term debt ratio and firm value in China's listed companies. Totally speaking, the optimal long-term debt ratio is 27.58%. When the long-term debt ratio is lower than 27.58%, firm value varies with the ratio in the same direction. When the long-term debt ratio is higher than 27.58%, firm value varies with the ratio in the opposite direction.(2) Short-term debt is much more than long-term debt under the optimal long-term debt ratio. It shows that, compared with transaction cost, financial distress cost and tax shield revenue, the listed companies pay greater attention to short-term debt in the function of reducing fund cost and agency cost.(3) Actually, debt maturity structure is obviously different among different industries. The average of most non-financial industries' long-term ratio is lower than the optimal ratio.