The Dynamic Adjustment Of Capital Structure Under Macroeconomic Shocks

This paper examines how macroeconomic conditions affect capital structure choice for listed Chinese companies. We construct a dynamic adjustment model of capital structure, and find that the scale and cost indexes of credit market and stock market, which as exogenous macroeconomic shocks, do have impacts on firms’ choice between debt and equity financing. We examine the data of more than2000listed Chinese companies from1998to2011, and find that economy and policy fluctuation alter firms’access to bank loan and equity financing, and therefore influence the dynamic adjustment of capital structure. What’s more, this influence is different for companies with different size. Large size companies have higher ability to gain credit fund and adjust quicker to their target capital structure. However, they have lower attention to interest rate. Companies with smaller size, in the contrary, pay more concern on interest rate. As for the equity finance, the expansion of equity market afford firms more chances to equity financing, while stock return is not a significant index for firms’capital structure. In addition, with the rapid development of the bond market, the capital structure will do more research into the bond market factors.