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

Capital structure is worthy of study for its great theoretical and practical value. The relationship between capital structure and enterprise value has been attentioned by professors all over the world. Not only the rational capital structure is important to firms, but also it has initial influences to the creditors, owners, managers. Since economic system and character of capital market is very different in every countries, and capital structure and their mechanism is different obviously, it is so necessary to study the relationship between capital structure and value of firms under this peculiar economical environment background of China.Firstly, this paper summarizes and analyzes the relative theories on capital structure and the value and relative empirical literatures home and abroad. Theories of capital structure contain early theories and classic theories and modern theories of capital structure. The classic theories had advanced the proportion theories, they emphasizes that the best capital structure is under the benefits and risks. Modern theories of capital structure indicated that the change of capital structure would influence the company's performances in a free stock market. In developed countries, capital structure of listed companies has testified that. Companies of different industries have different capital structures. Different times and different styles and different methods will lead different ends. So today we still don't know the correlation between capital structure and enterprise value.Secondly, this paper is designed to find out the differences between listed companies of steel and agriculture industries, thirdly, this paper is about to set up a model for empirical research to reveal whether industry influences capital structure, whether and how capital structure affects their performances negatively . Maybe it can reflect the degree of maturity and efficiency of our security market.This paper chooses companies of steel and agriculture listed in Shenzhen and Shanghai stock markets for research. There are 55 companies (26 of steel industry, 29 of agriculture industry) for research. We choose their data from 2005to 2007. Empirical Analysis includes the relationship between capital structure and value of firms. The relationship between the capital structure and value of steel and agriculture firms are negative. This paper uses asset-liability ratio to describe the capital structure of sample companies; Tobin Q is used to describe the value of sample companies. Time is also contained for the virtual variable, another variable is the sizes of the enterprises, the last variable is GRMB which represents the updating of the main revenue. These four variables are used to the tropical analysis how the capital influences the enterprise value. We find the value of steel and agriculture companies during 2005 to 2007, it has negative relation with its capital structure, we also find that the different industries have different capital structures.At last, combining the empirical results, some suggestions have been given to optimize the capital structure and the value of the listed companies in our country from macro and micro angles. It contains that listed companies should optimize their capital structures, enhance their retained profits, establish dynamic mechanism, we also should optimize the capital market and supervision must be strengthened, besides, we should innovate the financial system.