The Relevance Analysis Of Capital Structure And Employee Compensation

Since Modigliani and Miller show that capital structure has no relationship with corporation’s value, the theory of capital structure has passed more than half of century. However, the study of capital structure is still the focus and difficulty of the corporate finance. From the process of study, the focus of the study has passed from the irrelevance theory to the state trade-off theory, to the dynamic capital structure theory, but we still have not a perfect theory and can not ascertain the optimal capital structure. When the scholars confront this bottle-neck, they gradually give up the study of best capital structure and find the factor to explain the capital structure. In the trade-off theory, we think the corporate exists the optimal capital structure, human capital bankruptcy cost can great than tax shield revenue, capital structure can influence employee compensation.This paper firstly introduces the process of capital structure theory and concludes the theory’s consequence and introduces the future development. According with the trade-off theory, this paper shows that the corporate has the optimal capital structure, it trades off the cost of bankruptcy and tax savings. This paper use panel data regression to research on the leverage of firms and executive compensation or employee compensation by taking2003-2012listed company as sample. In the study, we take four ways to compute leverage, the results show that the capital structure of the company has strong relationship with executive compensation or employee compensation, this results support the theory.To find the difference between ante effect and post effect in the labor market, when we divide the sample into finance distress and non-distress firms according to the Z value, we find that the capital structure has strong relationship with executive compensation.Due to the employee possesses good technology in high-technology company, the labor market have high demand for them. When the company goes bankruptcy, the employee could find a suitable job in a short time. To examine the difference between capital structure and executive compensation or employee compensation in high-technology and non high-technology company, we divide the sample into two sample. We find the executive compensation or employee compensation has strong relationship with capital structure in non high-technology, however, not in the high-technology. In the last, this paper concludes the consequences and shows the meaning to the study of bankruptcy.