Growth Option,Financing Capacity And Speed Of Capital Structure Adjustment

Capital structure problem has been heated discussed in the field of corporate finance. The MM theorem initially proposed that firm value is irrelevant to its capital structure, after than, capital structure theories came through a big involvement, from Net Profit Theory, Net Operating Income Theory and traditional Trade-off Theory to the modern new capital structure theory. As an important factor affecting capital structure, growth option theory also enter into a new phase. Financing capacity can also have a significant impact on capital structure. It is a concept of an incrementent, that is, under the existing operating conditions and capital structure, how many funds a firm can raise in the coming future.As for how growth option and financial capacity affect the adjusting speed of capital structure, there is few research currently, especially in the mechanism of growth option--financial capacity--capital structure adjusting. And China’s capital market has its own uniqueness, such as listed companies preferring to external equity financing, no enough dividends, which makes it necessary for us to study the question, especially testing the listed companies in China.In the paper, we use MBA and CE, as proxies of growth option, to examine the effect of growth option and financial capacity on the adjusting of capital structure, with the data from China’s A-share non-financial listed companies. And we come to the following conclusions.(1) Growth option and financial capacity can produce a significant impact on the capital structure.(2) it takes about six quarters for listed firms to adjust its capital structure to the optimal.(3) There is a convex relationship between growth option and capital structure, but on the point of the speed of the recapitalization, the convex and liner difference is not obvious.(4) Macroeconomic cycle clearly affects the mechanism of growth option--financial capacity--capital structure adjusting. (5) the bigger the growth option, the faster capital structure adjusts.This paper thus believes that regulators should facilitate the multi-channels finance, encourage financial funds to serve the real economy and promote the speed to capital structure adjusting. On the other hand, firms should also pay attention to the accumulation of growth options and financing capacity so they can easily expand their financing channels and flexibly adjust their capital structure. In addition, firms should also attach more importance to capital structure and adjust to it as soon as possible.