Empirical Study On Relationship Betwwen Capital Structure And Profitability Of Listed Manufacturing Companies

It is essential for every enterprise to optimize the capital structure. First, the capital structuredecision-making, which is very significant for the various types of investors to maximizerevenue, to improve profitability of the business and deal with the fierce competition in theindustry. Therefore, how to choose reasonable capital structure be named as "capital structurepuzzle" by the modern economists. In this paper, Making study on the relationship between thecapital structure and profitability of listed companies with chinese reality, which purpose is toascertain the relationship, further to improve and perfect the capital structure of listed companiesso as to maximize the profitabilityof these companies.The author firstly introduces the theory of capital structure and profitability of the companyand the Review of the theory at home and abroad;secondly, througing analysis the status quo ofcapital structure and profitability of listed companies on China's manufacturing, we can identifythe existing problems, and then analyzes the reasons; again based on theoretical analysis, we canpropose hypothesis; Thirdly, we analyze the empirical questions with statistical software to drawconclusions; Finally, according to the problems in the capital structure, combined withconclusions, some recommendations has been gived.This empirical study is based on 1614 observations which is earned from 538 listedmanufacturing companies in Shanghai and Shenzhen A-share market for three consecutive years2006-2008. By using principal component analysis, the first and second regression analysis, theconclusion has been showed that the profitability of listed manufacturing companies maintain aweak positive correlation with the asset-liability ratio, but has been significantly affected bylong-term debt asset ratio, showed a significant positive correlation, and obtained the optimal asset-liability ratio and the best long-term debt asset to maximize the profitability of thecompany. By increasing the debt financing, especially long-term debt ratio, listed manufacturingcompanies can optimize the company's capital structure, and make the long-term debt paly thefull positive effect in corporate governance, so that the listed companies further improve theoperating conditions and the corporate profitability.