On The Influence Of Stock Liquidity Of Listed Companies On Its Capital Structure

Capital structure, one of the most important issues in corporate finance field, has an influential impact on the financial status, cost of capital and earning allocation. There are three dominant theories in this field, including Trade-off theory, Pecking-order theory and Market-timing theory. All of these theories have been well developed and tested. However, all of them are related to the macro factors and corporate governance factors, and none of the theories finds something between microstructure of the market and capital structure.On the basis of data and information of listed companies from Shanghai stock market and from Shenzhen stock market2002to2012which issue A-shares only, the paper demonstrates the effect of stock liquidity on capital structure by illiquidity ratio, modified turnover rate and modified liquidity ratio, and further analyze the impact of this effect on condition of firms which meet the requirement of refinancing rules. We develop dynamic model to test the relationship between liquidity ratios and the speed of capital structure adjustment.We find that stock liquidity is positively correlated with debt-to-asset ratio and the influence to those which meet the rules of refinancing is more obvious. According to our findings, liquidity ratios have stronger influence to capital structure adjustment after non-tradable shares reform.