Study On The Capital Structure Of Private Listed Companies In Henan Province

Enterprise capital structure is a significant project of modern business management. As a special group,the listed company is the representative of modern enterprises. Therefore, the research on the listedcompanies’ capital structure is of typicality and representativeness. The research on capital structure ofwestern countries’ enterprises started earlier, but most traditional theories in the early stage are on the basisof experience judgment. The research results show that wealth of research achievements on westernfinancial theories have made since1950s. With the tools of mathematical derivation and statistics theypromoted and developed traditional theories on capital structure. Marked by MM theories proposed byModigliani and Miller, modern capital structure theories got full development. Afterwards, based on MMtheories, the modern capital structure theories such as the balance theory, the incentive theory, theinformation asymmetry theory and the pecking order theory gradually shaped. All of them greatly enrichedthe capital structure theories.According to the capital structure theories, the paper combines the fundamental conditions of privatelisted companies in Henan Province and researches from the aspect of asset-liability ratio and interiorstructure of liability and interest’s ratio. Asset-liability ratio is percentage which is obtained by dividingtotal amount of liability by total assets. It reflects the rate of liability financing in the total assets. The largerthe asset-liability ratio is, the higher the rate of liability financing is. In terms of the creditor, the lower theasset-liability ratio is, the safer the creditor’s asset is. In terms of the shareholder, liability financing canbring benefits of financial leverage effect and tax-exempt yields. Liability structure refers to theproportional relation among the entire amount of liability in company liabilities, especially for the ratebetween the short-term liability and long-term liability. When the total capitalization and asset-liability ratioare certain, the total amount of liability is certain. At this point, the short-term liability and long-termliability show a subtle relationship--as one falls the other rises. The rate of equity capital refers to theproportional relation between the accumulated business income of the company owner and shareholders’contributed capital. In terms of finance, the company’s accumulated business income is retained earnings ofthe company. Retained earnings refer the interior accumulation which is exacted from profits over the yearsor retained in the company. It originates from the company’s net profits in production and management activities which includes the surplus accumulation fund and undistributed profit. The surplus accumulationfund is the accumulated surplus with particular usages, while undistributed profit is the accumulatedsurplus without particular usages. The shareholder’s investment includes the capital stock and the capitalreserve. The capital stock is the amount of shareholder’s contribution in company’s equity. The capitalreserve refers the capital which is independent of company’s revenue so that enable the owners’ equity toadd. In general, it is the part of capital stock invested by other investors which exceeds the face value of thestocks.Capital structure optimization aims to realize optimal capital structure. Optimal capital structurerefers to achieving enterprise’s lowest operating cost and realizing capital structure of enterprise valuemaximization as well. Under this capital structure, it can mobilize enterprise’s various resources to itsmaximum level. Enterprise value maximization requires continuously lowering enterprise’s capital cost,and assure of no increase of funding risk simultaneously, or it will be to the disadvantage of improvingenterprise value. The optimal financing structure selected by enterprise based on its own characteristics hasto be conducive to maximizing the increase of ownership interest, lowering weighted average cost ofcapital, and remaining mobility of capital. Optimal capital structure is dynamic, and changes frequently.Different industries and different enterprises with different scale have different capital structures. Whenenterprise has difficulty in realizing optimal capital structure, it can consider suboptimum capital structure.Suboptimum capital structure refers to enterprise’s capital structure in which various financial indexes areregular and continuous development capacity is strong. Suboptimum capital structure can be actualizedwithin a section, but not a specific and fixed numerical value. Generally speaking, suboptimum capitalstructure is close to optimal capital structure, whose gap with optimal capital structure is influenced bysome uncontrollable factors. When enterprise’s suboptimal capital structure is close to optimal capitalstructure, it also will be beneficial to lowering enterprise’s capital cost, and increasing enterprise value.From the angle of external factor, capital structure of listed company is deeply affected by social andeconomic environment, especially construction and development degree of capital market. Currently, bondmarket in China, especially long-term bond market, has small scale, which seriously constraints listedcompany’s approach selection in adjusting capital structure. Hence, optimization of listed company incapital structure not only requires stronger optimization consciousness, but also requires completing construction of capital market and providing good financing environment.It can be discovered from the research result in the paper that: on the one hand, the asset-liability ratioin private listed companies in Henan Province has a tendency of increasing which suggests that theasset-liability in private listed companies is still pretty low. It also indicates that the company itself has astrong awareness of capital structure optimization. On the other hand, there exist much irrationality. in theinterior rate between liability capital structure and equity capital structure in private listed companies. Forexample, the rate of short-term loan in liability interior structure is too high, while the profit of retainedprofits in equity capital is too low. Therefore, the paper proposes the method of capital structureoptimization in private listed companies in Henan Province, offering references for the development ofprivate listed companies in Henan Province and the healthy development of domestic capital market.