Different Types Of Enterprise Capital Structure Influence On Product Market Competition

Since the reform and opening, China is in the restructuring process from planned economy to market economy, and various industries are experiencing changes from monopoly to competition. At the same time, China’s economy is developing with a high speed. As they play more important role in the global market, the Chinese enterprises are facing unprecedented opportunity and challenge. However, at present, different kinds of financing problems exist in China. For example, most of credit capital flows to the stated-owned enterprises and large enterprises, and it is difficult for small and medium-sized enterprises to get the credit support. Therefore, it is necessary to reconsider the problem how to adjust capital structure to help the enterprises enhance competitive advantage and growth power.Based on the analysis of previous theoretical and empirical research, the author explores the monotonic impact of capital structure on the market competition, using China’s listed companies as sample. Then, combined with the characteristics of China’s economic transition, the author considers the market structure, industry status, ownership and the relationship between government and enterprises and divides the listed enterprises into some different categories. This paper analyzes and compares the impact of capital structure on the product market competition for leading and following enterprises/state-owned and private enterprises, and then compares their differences. In this paper, our conclusions are as follow:The impact of long leverage rate on the product-market competitiveness is monotonic. For the enterprises with low or very high long leverage rate, increasing debt will have a negative impact on their competitiveness on product-market. To the contrary, for the enterprises with high long leverage rate, increasing debt will have a positive impact on their competitiveness on product-market.In the competitive industries, the difference in industry statuses between the leading enterprises and following enterprises is not very large. The impact of capital structure on product-market competition is similar for both leader and ordinary enterprises. However, in concentrated industries, the impact of capital structure on product-market competition is quite different between leader and ordinary enterprises.In competitive industries, for the private enterprises, the impact of long leverage rate on the product-market competitiveness is monotonic. However, for state-owned enterprises, the impact of long leverage rate on the product-market competitiveness is always negative. Therefore, in competitive industries, the government should encourage and support the development of private enterprises; also credit capital should slant to the private enterprises.The private enterprises usually have few capital and narrow finance sources. For the private enterprises, government subsidy could help them to enhance competitiveness. Therefore, government subsidy should slant to the private enterprises.