An Empirical Research On Determinants Of Capital Structure Based On Two-way Effects Dynamic Model

The problem of capital structure is ancient but always new. In order to solve this problem, Chinese and Western scholars have done a lot of theory and empirical research. The purpose of these studies is to explain theoretically why companies choose a particular capital structure, so as to provide a basis for corporate decision-makings. In 2007, the impact of financial crisis on China began to emerge. First, manufacturing enterprises in Pearl River Delta faced enormous pressure from the export downturn. Second, Shanghai Stock Exchange and Shenzhen Stock Exchange dropped sharply from a high point. In this case, determinants of capital structure of all enterprises must change. So, in the context of the financial crisis, the research on determinants of capital structure would be more meaningful.In this respect, this paper conduct a special study of the status of China's capital structure and manufacturing companies'determinants of capital structure based on two-way effects dynamic model with the use of 2006-2008 data, and then have the conclusion, make policy recommendations, and enable enterprises to have a clearer understanding of capital structure.First, we describe MM theory, trade-off theory, and new capital structure theory with the introduction of asymmetric information and literature at home and abroad about determinants of capital structure to provide preparation for the following theoretical analysis, assumption and empirical research. And then, we analyze the status of China's capital structure and differences in capital structure of different industries for the purpose of theoretical and empirical analysis about manufacturing companies'determinants of capital structure based on two-way effects dynamic model.Second, based on two-way effects dynamic model, trade-off theory, new capital structure theory with the introduction of asymmetric information and China's specific conditions, we conduct theoretical analysis and study design. After detailed theoretical analysis of companies'determinants of capital structure, advance hypothesis, select alternative variables, establish models, and select samples.Finally, with the model based on two-way effects dynamic model and the use of manufacturing companies'2006-2008 data, we analyze the determinants of capital structure and explain why. After the analysis, we reach a conclusion that Chinese listed companies has a low proportion of debt, a high proportion of equity, a high proportion of current liabilities and a relatively low proportion of long-term liabilities. Meanwhile,αcoefficient is too small, the adjustment speed of capital structure is too slow, and transaction costs are too large. Afterwards, on account of conclusion of the study, give policy recommendations of optimization of capital structure to listed companies.