Study On Influence Of Capital Structure On Enterprise Value Of Chinese Telecom Companies

Since the emergence of MM theory in the1950s, the relationship between capitalstructure and enterprise values has been the starting point of study on capital structure theoryalong with the constantly enriching capital structure theories, the continuous relaxation ofbasic assumptions and the introduction of other theories. But for the different theoriesperspective, theoretical basis and sample selection, there is no unified answer to whetheroptimal capital structure exists to make maximum enterprise values.Telecom operation is the pillar and strategic industry of the national economy, plays avery important role in many aspects, such as promoting economic and social development,improving the capability of independent innovation, promoting integration of informationtechnology and industrialization. In order to promote the rapid development of China’stelecom operation and enhance the competitiveness of the industry and vitality, the Chinesegovernment repeatedly has reformed the telecommunications system and operating companiesthrough the introducing competition, the separating between government and enterprises andreorganizing the telecom companies from1994. With the increasingly fierce marketcompetition, especially the issuance of3G licenses, large-scale network construction requirestelecom companies invest more much money. Therefore, how to make telecom companies notonly to ensure the capital requirements, but also to optimize the allocation of resources,improve operational efficiency, maintain a strong competitive edge, and enhance corporatevalue through choice of and reasonable arrangements capital structure has become a seriousproblem. At the same time, capital structure of China’s telecom companies have manyproblems, such as the high proportion of current liabilities and concentrated ownership, ect.To solve the above problems, this article attempts to come to the conclusion from thetheoretical analysis and empirical analysis, put forward constructive suggestions on thearrangements of the telecom companies capital structure to enhance corporate value.Firstly, the paper reviewed the capital structure theory, summarize the theoretical andempirical research results that scholars at home and abroad about capital structure andcorporate value, analysised the shortcomings of existing research and provided ideas for thefollowing empirical research. Secondly, it gave a detailed analysis of China’s telecom industryof the capital structure and development trends in current situation, and provided a basicbackground and related data of after studies. Then, using a single indicator and multipleindicators to estimate the enterprise value of the telecom companies. The paper use one-wayANOVA to compare with different measurable indicators of enterprise value and finallychoice EVAPC as a measurable indicators of enterprise value.Finally, the paper selected theHong Kong stocks financial statement data of China’s three telecom companies from2008to2011, analysised relationship among ownership structure, corporate value, debt structure andcorporate value by multiple nonlinear regression, and provided conclusions.The regressionresults show that the proportion of state-owned shares and enterprise value show a significant relationship of cubic function; the proportion of legal person shares and enterprise value showa significant relationship of quadratic function; the proportion of tradable shares is positivelyrelated to enterprise value; asset-liability ratio and enterprise value have a negative correlation;there is a negative correlation between the ratio of short-term liabilities and firm value, theratio of long-term liabilities and firm value，and the function of supervision and restraint oflong-term liabilities is more effective, long-term liabilities is more beneficial to theimprovement of enterprise value；the ratio of interest-bearing debt have a negative influenceon enterprise value, the ratio of non-interest-bearing debt have a positive influence onenterprise value, and interest-bearing debt is more significant impact on enterprise value,compared with the non-interest-bearing liabilities; scale of enterprises has negative correlationwith enterprise value.In the last part of this paper, it put forward relevant recommendationson how to enhance corporate value by adjusting the capital structure and pointed out theshortcomings of the paper.