Listed Companies In Growth Opportunities For Its Capital Structure

Capital structure is an important theoretical and empirical issue in modern corporate financial management. Different capital structure can lead to different capital cost, financial risk and benefit conflicts, and may influence market value of the company in the end. Analyzing diversified possible factors that influence capital structure, so as to keep a rational proportion between equity and debt and form an optimized capital structure, has been a key point of financial study for long.The theoretical and empirical studies in western countries suggested that growth opportunity is an important factor that influences a company's capital structure. But the empirical studies in the same area of our country got conflicting conclusions. Furthermore, compared with foreign studies, there are some shortages in the selection of variables, scope of sample and study methods in our country's studies. Consequently, based on the previous studies, this paper makes some improvements in these aspects and does some groping studies.Our study, using pooled cross-sectional observations of companies listed on the Shanghai Stock Exchange and Shenzhen Stock Exchange from 2001 to 2003, examines the relationship between growth opportunities and capital structure. Growth opportunities are measured in terms of five ratios, market value of the firm to book values of assets, market value of equity to book value of equity, book value of fixed assets to market value of the firm, capital expenditure incurred to book value of assets, capital expenditure incurred to market value of the firm.Results show that growth opportunities have significant influences on capital structure after controlling for firm size, profitability, industry, collateral value of assets, non-debt tax shields, government ownership and refunding ability. The higher growth opportunities a corporate has, the lower debt level it will hold and the higher the proportion of long-term debt to total debt will be. We find that firm's refunding ability, profitability and non-debt tax shields have significant negative influences on debt level, and firm size and collateral value of assets have positive influences on both debt level and debt maturity structure. Industry also has significant influences on capital structure. But inconsistent with prior studies, government ownership isn't found to be positively associated with capital structure in our study.