A Study On The Capitial Structure Of Power Industry

As the cornerstone of modern corporate finance research, modern capital structure theory aims to identify a financing portfolio with the lowest cost when pursuing the maximization of enterprise value. Therefore, the capital structure can be optimized. The optimization of capital structure is of great importance to business performance and the long-term strategic development of a company. For different industries, there are different factors affecting their capital structure. Power industry, the important basis of national energy industry, is characteristic of strong risk-resisting ability and significant scale effect, and its development has a direct relationship with the economic security. With economic development, China has seen an increasingly serious conflict between electricity supply and demand. In some areas, measures like power cuts have been taken to limit consumption. However, in order to relieve the conflict, more measures are needed such as "West-East electricity transmission project ", and the expansion in size of the generating units, etc. The development of power industry requires a lot of capital investment and the support of industrial policy. In order to seize a favorable position in the market competition, power enterprises should make full use of the resources in the capital market and optimize their capital structure. This article focuses on the capital structure of listed power companies, precluding certain factors such as industrial characters. In respect of the research of "the mystery of capital structure", domestic and foreign scholars has remained mostly at the static level, and ignore the nature of dynamic adjustment of capital structure, but in reality, due to the existence of the adjustment costs or transaction costs, companies will not be able to optimize the capital structure at any time.Firstly, this article will introduce the basic theories of capital structure from the industrial point of view, including static and dynamic capital structure theories, with the purpose of establishing a theoretical foundation for the analysis of the characteristics of the capital structure of listed power companies. Secondly, it will introduce the characteristics of the power industry, the status of the capital structure of listed power companies, and analyze the macro and micro-factors of capital structure. Based on the above mentioned, a dynamic adjustment model of capital structure is established, which will be tested empirically by the panel data of electric company from 2001 to 2006. Gauss-Seidel iteration and Non-linear OLS are used to estimate the entire model, and analyze the optimal capital structure and the factors of speed of adjustment. The empirical results show that the optimal capital structure has positive correlations with a company's size, growth, asset composition, and has negative correlations with its profitability, liquidity, non-debt tax shields; it is also proved that adjustment speed has positive correlations with the distance of deviation, company size and growth; and the dynamic model has more explanatory strengths than the static one. Finally, this article will make a conclusion, and discuss the most efficient way for optimizing the capital structure of listed power companies in China from the view of both internal and external financing environments. This article will make up the shortages existing in the static model and is more significant to analysis capital structure and adjustment speed in the view of the whole industrial level.