Capital Structure And Abnormal Returns

Long-term debt and equity capital combined to form the enterprise’s capital structure,weigh the benefits and risks of debt, to achieve a reasonable target capital structure, toachieve maximum business value is the contents of the capital structure decision. Capitalstructure decision-making is the core issue of corporate finance decisions, which directlydetermines the choice of corporate financing and the share of financing, thus affecting theshareholders, creditors and other relevant stakeholders on the extent of corporate control. AsChina’s listed companies in China’s economic performance is increasingly becoming animportant part of the capital structure of listed companies, the study will help maximize thevalue of their own.With China’s rapid development of economic, capital market reforms have also madegreat progress, increasingly sophisticated capital markets makes the stock market has becomea key focus area for experts and scholars.But in field of stock return,there are littlestudies.Any one company’s stock price is changing every day, the stock return is alsochanging, two factors led to this change: First, the particularity of individual stocks, second,the general market factors. The primary task of this paper is to determine the specificity ofindividual stocks as a result of abnormal returns, to determine the abnormal return iscalculated.This argument is the capital structure and the relationship between abnormal returns,verify this relationship, while concerned about the business industry where the impact of thisrelationship. Corporate debt ratio and cumulative abnormal returns are positively correlated,but the industry average debt ratio and cumulative abnormal returns are negatively correlated.It is important to separate external financing in an industry with debt ratio of a singleenterprises. This paper focuses on industry characteristics, in low industry concentration andhighly competitive industry, the higher debt ratio industry have, the lower the abnormalreturn. In high concentration the higher debt ratio industry have, the higher the abnormalreturn. In regulated industry, it is negative correlation between abnormal returns and debtratio.But in unregulated industry, it is positive correlation between abnormal returns and debtratio.