Behavior Under The Financial Capital Structure Research

·Based on traditional theory of capital structure, this research relaxes the assumption that people are rational. Based on people’ irrational psychology, a mathematical model of irrational managers’expected return on investment is built. Impacts of irrational managers and irrational investors on the capital structure decision-making were analyzed. First of all, the irrational managers and investors’ expectation are added in the trade-off theory framework that makes the firm’s optimal capital structure change. Managers and investors irrational sentiment also change the incentive constraint. Investor’sentiment may influence their participation constraint condition. Second, this paper establishes a market model where information is asymmetric and irrational emotions are prevalent, and studies Different types of enterprise’bond and new share issuance conditions, and company value’change after the capital increase. Results show that irrational managers tend to debt financing, willing to use short-term debt; capital structure constraint which shareholders make to motivate managers can be relaxed. There is market timing for company financing because of irrational investors’behavior. The more optimistic investors are the weaker constraint force to company’s capital structure they make. In the inefficient market where information is not symmetrical and irrational sentiments are widespread, Investors sentiments must be above a certain degree to meet the secondary offering conditions, and good companies make condition stricter. Irrational managers raise higher requirements for secondary offering, but their requirements for debt financing are more lenient. Investors’ sentiments have influence on the company’s market value after capital increase.The innovations of this article lie in:first, most of the existing literature focus on empirical research and confirm that the irrational behaviors have impact on company capital structure. But the systemic theoretical analysis is less. This article will relax the efficient market hypothesis of traditional corporate capital structure theory, making the traditional theory of capital structure improve. Second, literatures in behavioral corporate finance theory are divided into two general approaches, the first approach emphasizes the effect of investor behavior that is less than fully rational, and the second considers managerial behavior that is less than fully rational. Some scholars pointed out that combining the two approaches is an important direction for future development. This paper does some effort in this direction.