An Empirical Research On The Relationship Between The Capital Structure And Value Of Listed Firms

Capital structure is worthy of being studied for its significant theoretical and practical value. Capital is one of the most important factors for a corporation. It is meaningful to discuss how to optimize capital structure and improve firms'value. MM theory was developed by Modigliani and Miller in their paper in 1958. From then on, the issue of capital structure has caused great interests among financial academics and financial practices. MM theory supposes that the capital structure of a firm is not correlated with its value in the conditions that there exist no trade cost, tax and information asymmetry for the firm. The MM theory describes the ideal status. From 1960's to1990's, many scholars release some theoretical hypothesis of MM to meet the realities of business. And they find that there is a close connection between capital structure and firm's value.The relative theory on the capital structure and firm's value and relative empirical literatures home and abroad are summarized and analyzed in this paper. Modern theories of capital structure indicate that firm's capital structure can impact the firm's value in a perfect stock market. Firms in different industry have different capital structure. For some firms, the relations between their capital structure and value are positive, while for others are negative. There has been no last word yet by now. According to an empirical research, we find out whether and how capital structure affects firms'value. The result reflects the degree of maturity and efficiency of the securities market.This paper focuses on the listed firms in China with empirical research. Some general characters of the listed firms and their industrial specialties are summarized. At the end, the essay analyzes the factors which impact the capital structure of the listed firms. While studying the relation between capital structure and firm's value, this essay tends to make a further theoretical analysis by considering the unique phenomenon of inner control in corporation and emerging capital market in China. Meanwhile, 30 household appliances industry listed companies in Shenzhen and Shanghai Stock Exchanges has been chosen as study samples in this empirical research. The research also collects these companies'annual financial data from 2005 to 2007. These data are used by descriptive statistics and regression analysis. According to modeling built in this dissertation, we select Tobin's Q, MBB and ROE as indexes to measure firm's value, and introduce some leading control variable. So we draw a conclusion that we can get different correlations if we choose different measure indexes of firm value. So, it's necessary to establish a new capital structure theory suitable for China. According to the result, we can put forward the relevant suggestions about optimizing the capital structure of listed corporations.