Macroeconomic Condition,Firm’s Characteristics And Capital Structure Dynamic Adjustment

Enterprise’s capital structure is one of key point of the modern corporate finance. Western acadamic research on capital structure can be traced back to the1950s. Modisliani and Miller published "The cost of capital, corporate finance and investment management" and put forward the MM theory. Later scholars developed trade-off theory, pecking order theory and agency cost theory. As the study for capital structure goes deeper, dynamic capital theory appeared. According to dynamic capital theory, capital structure choice is a dynamic process due to exernal and internal environment changes. The imperfection factor of market, such as information asymmetry, makes the enterprise actual leverage off their target leverage ratio. Companies need to weigh the benefits and costs of adjustment of capital structure, to decide whether to adjust leverage or not.Domestic research on dynamic capital structure started in recent years. Along with our country market economy development, there is diverse corporate financing way. How to optimize capital structure and allocate capital reasonably is an important subject research. Taking the state of our country’s economy as the background, our paper analyzed influencing factor of dynamic adjustment. We hope that our paper could provide reference for the cpital structure optimization.With a sample of listed companies from2000to2011and using Generalized method of moment (GMM), the paper researches the impacts of firms characteristics and macroeconomic factors on capital structure dynamic adjustment towards target leverage. Using integrated dynamic partial adjustment capital structure model, we find evidence that, relative to in bad macroeconomic states, firms adjust their leverage towards target faster in good states, and that large size firms adjust their leverage towards target faster than small size firms. So dose high growth firms. Our result also prove that, since small size firms are unable to adjust their leverage in time, especially in period of economic recession, they are more likely to face financial difficulties and capital chain ruptures. Finally, according to the result of empirical analysis, we put forward suggestion of capital structure optimization about internal company and external environment.