Empirical Analysis Of Capital Structure And Firm Growth

MM model brought forward by Modigliani and Miller indicates that different style of financing is not relative to firm value in perfect capital market. It means that in the circumstances of perfect capital market firms need not consider financing decision. But the hypothesis premise is not accordant with the fact and financing decision could not be irrelative to firm value. Different financing decision makes influences firm value as well as growth.Sustainable growth modeling can apply financing decision to growth. In the sustainable growth modeling, it is drawn a conclusion that more debt financing can raise the growth.Due to the autitax function of debt financing, the effect of financial leverage comes into being. However, when debt financing brings certain financial leverage effect, it also results in the raising of risk due to the pressure of product and market competition. It is come to a conclusion that there is the best financing decision for every firm.With the economic development, financing decision should be changed to adapt itself to a new growth.Analyzing list companies of three sectors in China, it is supported that different competitiveness position in different sectors shows obvious earning-risk difference, as well as capital structure.It is showed that the higher proportion of debt financing can raise growth, but it is told that higher proportion of debt financing also bring on higher capital risk and reduce growth.Furthermore, growth exercises an influence to capital structure. Financing decision should be changed to adapt itself to a new growth.In the light of the specific character and the competitiveness position, every list company of China should make a choice of financing decision to keep sustainable growth; moreover, capital structure should be geared to new growth.