Study On The Relationship Between Chinese Private Entrepreneurs’ Characteristics And Enterprise’s Capital Structure

Since Modigliani and Miller issued the famous paper "The cost of Capital, Corporation Finance, andthe Theory of Investment" in1958, scholars in the west have made series of studies in firm’s capitalstructure, and these studies have formed a theoretical jungle of capital structure. Classic theory of capitalstructure is based on the hypothesis of the classic Microeconomy, regards firm as a black box, and extractsentrepreneur’s characteristic out of studies. Few of the following empirical researches verified therelationship between entrepreneur’s characteristic and firm’s capital structure. We can not avoidentrepreneur’s influence on capital structure because of the fact that the entrepreneur is a firm’s decisionmaker. Whether the entrepreneur’s characteristic influences firm’s capital structure and how will it influence,this is a question worthy of making further study and it will be complementary to the theory of capitalstructure to study the question, and it also will be helpful to explain practical problems.Build the theoretical logic of this study in the base of the perspective of upper echelons and capitalstructure strategy, and George Katona’s model, measure entrepreneur’s characteristic from two dimensionsincluding demographic indicators and personal risk preference, measure firm’s capital struture by debt assetratio (D1)and short-term debt ratio(D2), make linear model of entrepreneurs’ risk preference and capitalstructure as well as entrepreneurs’ demographic indicators and capital structure. The empirical analysisconcludes that there is linear correlation between entrepreneurs’ characteristic and firm’s capital structure.Specifically, the age has negative correlation with D1and D2, the tenure has positive correlation with D2,while educational degree and risk preference have no correlation with capital structure. In the fourindicators of entrepreneur’s characteristic, the age has the greatest influence on capital structure, which isfollowed by tenure.This paper’s innovation includes three aspects. Firstly, measure entrepreneur’s characteristic from twodimensions including demographic indicators and risk preference. Secondly, adopt George Katona’s modelinto the theoretical part, which is the classic model for analysing individual psychology and economicbehavior in Psychological Economics. Thirdly, add the structure of debt term measured by D2into capitalstructure. However, there are also shortages in this paper. Firstly, the sample size is small, so the regressionresult can not be what we expect. Secondly, the indicators of risk preference may not be accurate, and demographic indicators can not portray a person’s characteristics completely. The shortages also provide adireciton for the future research.