An Empirical Study Of Optimal Capital Structure Interval For Real Estate Industry

In recent years, real estate industry in China has experienced an extremelyrapidly development, which has become the backbone of our economy. For a longtime, the potential financial risks which be taken by the problems of theover-dependence on a single source of fundraising and high level of debt ratio did notarouse enough attention. In the backdrop of financial crisis in2008and themacro-control of real estate in2010, financial risks of real estate industry have beenconcentrated erupting in deteriorating external environment, the sense which aboutchanging the status of the real estate industry financing concept has been widelyconsensus. The purpose of this study is providing some useful services in financingdecisions by seeking the optimal capital structure internal of the real estate industry.This paper starts from the theory of capital structure and takes a review ofresearch on domestic and foreign. In the part of theoretical research we make asystematic carding on the research of relationship among capital structure, enterprisevalue and financial leverage theory. According to the theoretical research, weconclude that the research of relationship between capital structure and corporatevalue is the foundation of the optimal capital structure and financial leverage effect isthe method of capital structure optimization problem. Then we establish a main ideaabout how to find the optimal capital structure interval in empirical research bymeasuring financial leverage effect.In empirical research, we select126listed companies as the research samplesfrom real estate industry and collect data from2009-2011annual reports of listedcompanies. Around the hypothesis which is about the capital structure affectsenterprise value through playing financial leverage effect, we use empirical methods,first of all, we measure the corporate value by factor analysis. We select11financialindicators which represent profitability, credit capacity, growth ability and investmentvalue of the companies. Then we use those financial indicators to measure thecomprehensive score of enterprise value by using factor analysis method. Secondlywe establish the optimal capital structure interval measuring system, it includesenterprise value and some indicators which reflect the precondition and effect degreeof the financial leverage effect exerting such as asset-liability ratio, EBIT margin, debtinterest rate, financial leverage effect and DFL. We estimate the indicator’sperformances in different levels of enterprise value, DFL and asset-liability ratio, and then we set some select conditions of the optimal capital structure interval. Finally wechoose samples which satisfy the select conditions from the126listed companied anddetermines the optimal capital structure interval is [50.67%,79.74%] of the real estateindustry.In the part of empirical research, we argue that the way which to enhanceenterprise value by using financial leverage effect must be considerated in two aspectsat the same time. One is keeping a reasonable level of liability and reducing the costof debt, and another is promoting the enterprise overall performance level. In the endof the paper, we make some suggestions which based on the empirical results andfeatures of real estate industry about how to optimize the capital structure of the realestate industry, the methods include that promoting financial leverage effect inpositive way, broadening internal and external channels of financing and establishinga financial risk prediction system.