Construction Of Capital Structure Evaluation Index Based On Factor Analysis Method

As the core of modern finance theory, the theory of corporate capital structure has recently become an important issue in the world. A search of CNKI abstracts containing the term "capital structure" results in more than 800 hits during the year of 2008. However, there is only few papers focus on capital structure evaluation until now.Capital structure assessment can not be ignored for the effective functioning of enterprises, capital structure will determine the choice of methods of corporate financing, as well as the proportion of the financing sources, thereby affecting the degree of control from the shareholders, creditors and other stakeholders of the main business, far more than just a simple relationship of the ratio between capital and debt.The purpose of researchThe purpose of this study reflects from the following two aspects:(1) To build a capital index through the preliminary study of the various factors affecting the capital struture, in order to observe and evaluate the reasonableness of corporate finace. It is a new attenpt to evaluate the capital struture from the view of building index. The important issue which this paper needs to resolve is to find the method of building evaluation index to capital struture. In this study, factor analysis method will be used to achieve the purpose of evaluating the capital struture. Maybe the study will offer the further reference for the companies in China.(2) To analyze the situation of listed companies'capital struture in Sichuan province. As the western biggest province, Sichuan has a total of 70 listed companies as to June 2009. These companies involve nine industries, such as: manufacturing,information,technology,real estate,construction,social service,wholesale and retail trade,transport,energy,production and supply and so on. There are problems during the period of economic transition. Therefore, this article is intended to evaluate the capital struture in order to play a important role in guiding the practice.Main contents and perspectiveThis study consists of 6 chapters.Chapter one:Introduction. This chapter introduces the research background, research purposes, research ideas. Under the influence of traditional definition of capital struture, most study-of capital struture make the assets and liabilities rate or long-term assets and liabilities rate as the only object. In this paper we will evaluate the condition of capital struture to provide useful information to people who concern with the companies.Chapter two:Basic theory. This chapter first reviews the early capital struture theory. In this part, we will realize the study of evaluation of capital struture has developed from a simple point research to range research. On the base of the theoretical analysis,the mathematical statistics methods have been introduced, including simple descriptive statistics and various complex models.Chapter three:Literature Review. This chapter reviews former study from three perspectives:the current research of capital struture status,introduction of the index which we will established and the principle of factor analysis. This chapter provides a theoretical support for the later specific work, indicating the direction of the research.Chapter four:Empirical study. As a important part of this paper, first, we introduced the method of indicator selection. By studing all kinds of the current influent factors, we extracted six indicators though the principal component and named as follows:debt,size and human capital struture,ownership,growth,operating capacity and profitability.And then we get a comprehensive evaluation scores to show the status que of China's capital struture.Chapter five:This chaper based on the results of empirical research of Chapter four. We studied the listed companies in Sichuan Province. Compared with Guangdong, which was the number one in the rank of GDP in 2008, we found there is still space for Sichuan to improve its struture of capital.Chapter six:Improvement of the study. This chapter discusses the limits of this study and give hints on how to improve it. The main contribution of the article is as follows:(1) This article finds the unique point of view for judging the situation of the capital structure and redefines the capital structure from multiple perspectives through the unconventional understanding for capital structure especially by introducing the research for human capital structure. Based on discussion of evaluation factors for capital structure, doubt is generated that empirical research only do linear regression research for factors affecting the capital structure. Therefore, this article is trying to utilize more suitable statistical research method to explore the evaluation methods for capital structure, constructing capital structure evaluation index.(2) The capital structure index constructed by this article uses factor analysis based on three years'financial data from listed companies to calculate compositive score, in order to optimize the capital structure of listed companies in China and convey more useful information to stakeholders for their decisions.(3) The index analysis of capital structure for Sichuan listed companies discovers that listed companies with good capital structure is rare and the compositive score is not ideal for the biggest province in western China with obvious distance from Guangdong whose GDP ranks fist in 2008. Hopefully, the listed companies in Sichuan will focus on optimization of capital structure and target the goal fortune 5oo driving the economic development of Sichuan.