Capital Structure And Stock Returns Of China's Listed Company

Capital structure has always been a main issue in finance, but until now academics still do not have a unanimous conclusion. The existing capital structure theories have difficulties to explain many anomalies, which put the traditional theory into predicament. With the development of Behavior Corporate Finance, some scholars put forward Market Timing Theory, the core content of which are capital structure and stock returns. This paper discusses the relationship between capital structure and stock returns, and then tries to explore the capital structure of China's listed companies in terms of Market Timing Theory.Taking a sample from China's listed companies between 1996 and 2006, this paper makes reference to Welch Ivo (2004) model, and focus on the of relation of capital structure and stock returns.The findings include: (1) the capacity of the listed companies is so limited that can't adjust to the price fluctuations of stocks in the market. The price fluctuations of stocks take the dominant effect in the formation of capital structure. Issuing actives doesn't counteracted the effect of the stock returns, on the other hand amplified the effects. (2) When stock returns are accounted for, many other proxies used in the literature play little role in explaining capital structure. Therefore, stock returns can be viewed as the dominant factor in influencing the capital structure of enterprises.The research structure of this study is shown as follows:Chapter 1 gives a brief introduction about this study, including the research backgrounds, the research meanings, the research methodologies, the contents and the framework.Chapter 2 surveys the capital structure theory and the Behavior Corporate Finance, then gives the main issues, namely capital structure and the stock returnsChapter 3 introduces the model of this paper and the design of the empirical test.Chapter 4 firstly introduces the sampling statistics and descriptive statistics as well as the definition of variables. Then the preliminary findings about the consistent of the capital structure and stock returns are shown.Making reference to the research methodology of Welch Ivo, chapter 5 tests the sample and makes theoretical analysis about the results of the test. As the result shows that stock returns take the dominant effect in the formation of listed companies' capital structure.The summary is included in the last chapter. It sums up the relationship between capital structure and stock returns and points out the limitations of the research and the further research direction.