Non-linearity In The Determinants Of Capital Structure: Evidence From Chinese Listed Companies

Since the MM theorem was proposed in 1958, the issue of capital structure has attracted considerable interest among economists and financial researchers. This paper reviews the development course of the theory of capital structure and Empirical evidence at home and abroad briefly, then analysis the determinants of capital structure in Chinese-listed companies theoretically and empirically based on their own characteristics and the institutional environment.In terms of theory, based on agency theory and asymmetric information theory, the paper develops a dynamic model of the firm's maximization program in which the firm's capital structure is a nonlinear function of such costs and is subject to a debt ceiling. Through Comparative static analysis, the paper demonstrates that there is the nonlinear relation between the capital structure and the determinants, and the effect of the same determinant differs according to whether firms are highly leveraged.In empirical analysis, the paper uses quantile regression techniques to estimate the capital structure equation. Compared with the OLS method, quantile regression allows us to examine the whole distribution of firms rather than a single measure of the central tendency of the capital structure distribution. Consequently, we are able to evaluate the relative importance of explanatory variables at different points of the distribution of firm's leverage, and get more information which is particularly valuable if there is significant heterogeneity in firm's leverage ratio.Finally, according to the results of theoretical and empirical analysis, the paper draws some conclusions about the relation between the capital structure of Chinese-listed companies and its determinants, and tries to put forward some suggestion on how to optimize the capital structure.