The Empirical Research Of Capital Structure Dynamic Adjustment Under The Influence Of Diversification Strategy

Cross-over study results of Industrial Organization, Strategic Management and Corporate Finance suggest that there are close and complicated relationships between corporate strategy and capital structure. As a kind of important corporate strategy, diversification strategy will definitely affect the capital structure, and also will affect corporate business activities. It is extremely common for Chinese listed agriculture companies to diversify, there is obvious relationship between corporate strategy and capital structure. Capital structure has a nature of dynamic adjustment, diversification strategy has an impact on the dynamic adjustment of capital structure evidently.This paper studies capital structure dynamic adjustment of listed agriculture companies from the perspective of diversification strategy, making up for the deficiencies of the traditional static study. Firstly, this paper makes the theoretical analysis of the influence approaches of diversification strategy on distance between observed and optimal capital structure and adjustment speed on the basis of analysis of motives for implementing diversification strategy. Secondly, this paper constructs a partial adjustment dynamic capital structure model, considering the impact of diversification strategy. At last, the paper employs the entropy index to measure the degree of diversification, and makes an empirical study based on unbalanced panel data of 24 Chinese listed agriculture companies from 2002 to 2007.On the basis of theoretical analysis and empirical analysis, this paper comes to conclusions as follows:(1) The diversification strategy of Chinese listed agriculture companies has a significant impact on the dynamic adjustment process of their capital structure. There is a negative relationship between dynamic adjustment of capital structure and degree of diversification. The deeper the degree of diversification is, the closer the observed capital structure to the optimal capital structure is, and the smaller the adjustment speed is.(2) The capital structure of Chinese listed agriculture companies adjust to their optimal capital structure indeed, and adjust faster than United States, Britain, South Korea and so on. (3) Diversification strategy is a reasonable approach for listed agriculture companies to increase profit and deal with Capital market frictions. The paper provides a certain evidence for the coinsurance theory, deep pocket theory, and internal capital markets theory.