The Dynamic Adjustment Of China's Listed Banks' Capital Structure: Theory And Test

This paper uses a dynamic continuous time theoretical model and empirical model for researching the dynamic adjustment mechanism of the capital structure of China's listed banks. The results of theoretical model show that bank's profitability, the growth of bank assets and the volatility of the rate of return on assets of the bank are correlated with the bank's capital structure. In the dynamic empirical model, compared to the results of static model estimation, the dynamic model demonstrates greater explanatory power, which validates that the capital structures of China's listed banks follow a dynamic process of adjustment. The empirical results of dynamic model show that the capital structure of banks constantly adjusted with the changes of the external environment and the bank's internal operations and the environment of corporate governance, while macro-economic environment and capital market imperfections and other factors will be an important impact on recapitalize behavior of listed banks.As far as the effect factors of the optimal capital structure be concerned, the paper found that the optimal capital structure of banks and the return on assets of banks, equity concentration, as well as the percentage of management's ownership and other factors had significant negative correlations, while significant positive correlations with growth, the net return on assets, bank size, non-debt tax shield, as well as the nature of bank assets.In addition, the paper also found that banks did have a target capital structure, which decided mainly by balancing the benefits and costs of the debt (primarily bank deposits). The target capital structure can be either an optimal value or an optimum interval. Because of the existence of the bank's capital structure's adjustment costs as well as the occurrence of some random (unexpected) events, the actual capital structure of banks often deviate from their target capital structure and continue to make partial adjustment toward the target capital structure of banks.