Empirical Studv Of Diversification And Capital Structure Under Financing Constraints Based On Listed Corporate In China

This paper carries a research on diversification and capital structure adjustment of listed companies in manufacturing industry under the background of market-oriented reform. We focus on the influence of diversification to the efficiency of dynamic adjustment of capital structure under financing constraints. Firstly, with the financial data of listed manufacturing companies from2000to2012, we construct a reasonable index of financing constraints using the method of Logistic. Secondly, under the framework of the trade-off theory, the empirical research revealed that financial leverage and degree of diversification are positively correlated. Thirdly, starting with the motive to relieve financing constraints with diversification, we use partial adjustment model of capital structure with dynamic panel data and system GMM method to verify that diversification can effectively relieve financing constraints and improve the speed of the adjustment of capital structure. Finally, another research is carried on the non-linear relationship between capital structure and diversification. The empirical result indicates that the inverted U-shaped relationship is not significant. The principal-agent problem leads to excessive diversification which fails to relieve financing constraints constantly and deteriorates the adjustment of financial leverage.