A Research On Influencing Factors Of Capital Structure Of Life Insurance Corporations

Capital structure is about the ratio of debt capital and equity capital, from the perspective of corporate finance, it also can be understood as a corporate finance structure. The proportion of the debt capital will result influence the weighted average cost of total capital, and cause changes in enterprise value. So capital structure is a key point to corporate financial management.1952, Durand started the study on capital structure systematically, and until 1958, MM theories, the classical capital structure theories became the focus of corporate finance research. After MM theories, the agency theory and asymmetric information theory have been introduced to the study of capital structure. Hence, capital structure theory research has formed a complete system. But, there are some assumptions and non-quantifiable factors in the theories, therefore, it is better to research the factors of capital structure than to study on specific point of optimal capital structure.Previous empirical research has proved that the differences of industry characteristics determine the different factors impacting on capital structure of enterprises. This dissertation is based on life insurance industry to analyze the dominant factors.Since insurers operate on liabilities, they hold certain level of capital to cover the financial loss caused by unexpected risks. Unfortunately, capital is costly due to such frictional costs as regulatory costs, transaction costs and taxes, etc. Therefore, insurers would not hold enough capital to absorb all risks. What’s the optimal capital scale of life insurers is determined by the profits and the costs. Due to the close relationship to socio-economic stability, governments impose strict regulation on life insurers’business. So, the level of capital held by insurance is determined not only by the interest tax shield of liabilities, costs of financial distress, agency costs and asymmetric information, but also by the costs of government regulation. What’s more, stockholders’attitude towards risk, external financial resources, earning capacity and other current operating condition will influence the capital-debt decision. So it is necessary to analyze the specific factors to life insurance company’ financial structure.This dissertation, first of all, introduces the important theories of capital structure and application in life insurance industry. These theories provide theoretical guidance for the research on main influencing factors of life insurance companies’ capital structure.Secondly, basing on the theories of capital structure, analyses current status of life insurance companies’ capital structure and finds out several features of demotic life insurance companies’ capital structure, such as weak internal financing, narrowing financial channels and long-term debt accounting for a large proportion.Thirdly, from the macroscopic and microscopic perspectives, analyses the specific influencing factors of demotic life insurance companies.Fourthly, makes use of 30 life insurance firms’ financial and operating data from 2003 to 2009, and adopts panel data regression analysis method to complete the empirical research.Then; gets the regression model of the main influencing factors on capital structure.Through qualitative analysis and quantitative analysis, this dissertation gets the conclusion that asset size, life premium scale, tangible assets, profitability, growth rate and product structure are related to the asset-liability ratio, which represents the capital structure, and their correlations are significant. Finally basing on the actual situation in our country and the results of empirical analysis, this dissertation lists several suggestions to optimize the capital structure of life insurance company.