Capital Structure Theory And Capital Structure Affecting Factor Analysis On China’s SMEs

The capital structure theory was first proposed by Modigliani and Miller in their paper published in The American Economic Review. In their paper The Cost of Capital, Corporation Finance and the Theory of Investment, they discussed the relationship between the corporate value and capital structure, and concluded their theory as "MM" theory. Later, with the expansion of the basic assumptions, the modern capital structure theory which based on information economics gradually took shape. And by now, the capital structure theory, investment theory and dividend policy theory together are called three core issues in the corporate financial theory. And the capital structure has become the hot topic in both the economic and corporate finance study. Both the domestic and abroad studies on capital structure of large companies have stepped into their maturity. And the study of capital structure based on small and medium sized companies in developed economic entities are yet far from beginning. But due to the late beginning of our country’s market-oriented economy, and the developing status of our financial market, the small and medium sized companies have not been attached to their due weight. Besides, the financing methods for China’s small and medium sized companies are limited, so the capital structure theory which rooted in developed countries are not so applicable in China. However, with the maturity of our capital market, the opening of the banks, the lowering of the thresholds for the IPO of small and medium sized companies, and the opening of debenture stock market for small and medium sized companies, the study on SME became important again.Compared to the small and medium sized companies in developed countries, our companies are really different in organization structure, market perfection and legal environment. So the comparison between developing and developed countries using capital structure theories seems extremely important in dealing with the optimizing capital structure and maximizing the company value in developing countries. This paper has summarized the development of the capital structure theory, and the domestic and abroad empirical studies. And through analyzing the exclusive characters and outer environment of our SMEs, explains the applicability of western capital structure theories in our country. At last, this paper summarizes the factors that affect the SMEs in our country, then uses empirical research to testify results, and at last gives out the solutions for optimizing the capital structure in our SMEs.