Product Market Competition, Debt Capital Cost And Capital Structure Dynamic Adjustment

Dynamic capital structure theory suggests that changes in the company’s internal and external environment makes its choice to become the target capital structure there is a dynamic process, external environmental factors such as changes in factors affecting the company’s actual capital structure deviates from the target capital structure, so companies need to constantly changing environment will be constantly adjust the capital structure, in order to achieve the optimal state. Product market competition as an important external factors affecting the capital structure of enterprises. Meanwhile, the cost of debt capital as an important external financing for the company’s operations and the flexibility of the investment activities of financing is crucial, then this external product market competition mechanism will affect how the debt cost of capital? Changes in the cost of debt capital also will dynamically adjust the capital structure to produce what kind of role?In this paper, a study along the following main lines, namely product market competition- the cost of debt capital- capital structure dynamically adjust the speed of this logic, based on data from 2001 to 2012 in Shenzhen and Shanghai A shares of non-financial listed companies using the Herfindal index as a proxy variable product market competition, theoretical analysis and empirical analysis of the way, the above problems, the article is divided into three parts to study:The first part discusses the relationship between product market competition and the cost of debt capital between the results of the study found that the more intense level of competition, the higher the cost of debt capital; at the same time, the intensity of product market competition degree of influence on the company’s cost of debt capital for small-scale greater than large firms, that is, the more competitive compared with large companies, small companies, the more obvious the cost of debt capital growth.The second part, the impact of the use of the Department of Research cost of debt capital for dynamic adjustment of the speed of capital structure, capital structure established empirical results GMM method to dynamically adjust the model using the system found that the cost of debt capital adjustment costs as capital structure, cost of capital and debt recapitalization speed is inversely proportional to, that when the cost of debt capital increases, recapitalizations speed will be reduced.The third part is mainly to clarify the product market competition, the cost of debt capital, capital structure dynamically adjust the speed of the logical relationship between the three, by empirical results can know, when external mechanisms tend to fierce market competition, the cost of a dynamic adjustment of capital structure the rising cost of debt capital, capital structure dynamically adjust the speed decreases; and, in the product market competition is more intense, as the cost of debt capital adjustment cost impact on the speed of adjustment of the more obvious, that is, the external market competition, the cost of debt capital makes adjustment slowed down the more significant; worth noting that product market competition as a mechanism of external influences in the capital structure of the dynamic adjustment did not play a direct impact on the role, but by the impact of its corporate debt the level of capital costs, and thus have an indirect impact on the speed of adjustment.