Product-market Competition And Capital Structure

Capital structure and competitive decisions are the two important decisions which must be made by firms in capital market and product market. One hand, capital structure will change the financing risks and costs, different contracts will lead to different constraints that will influence the other decisions of firm. On the other hand, the decisions of product-market competition will decide the aim of maximizing profit and the timetable withdraw of cash flow. For the internal connections laid in the capital structure and the product market, there are interactive influences between capital structure and product-market competition decisions. Since the scholars beginning to pay attention on the relationship between product-market competition and capital structure, more and more theory and empirical results appeared. With the deepening and kind’s perspective of research, the views of the relationship between product-market competition and capital structure by the scholars have not reached a consensus. What’s the relationship between the product-market competition and capital structure? Is positive or negative? For different industrials, whether there is a difference between the effects of the product-market competition on the capital structure, what’s the difference? On the basis of the study in the preface, for different industries, expand the empirical research combined with the characteristics of capital structure and product market in China.In this paper, we mainly analysis the effect of the product-market competition on the capital structure from three dimensions. Firstly, analyzed the effect of product-market competition on capital structure, then plus the industries characteristic, and based on industry maturity and industry competition to analysis. Meanwhile, based on the data from the2010-2012annual reports of companies listed in Shanghai and Shenzhen Stock Exchange markets, this paper tested the theoretical analysis by using linear regression method, and came to a conclusion as follows:(1)The competitiveness of company effects the long-term debt, but it doesn’t affect the short-term debt. Long-term debt rate and the competitiveness of a company shows negative correlation: the more competitive the company takes, the more incentive to take conservation financial strategy the company will have. But whether they will choose short-term debt is uncertain.(2)In the different industries of maturity degree, market competition affect differently on the capital structures. In the growth industries, Long-term debt rate and the competitiveness of a company show negative correlation. There is no obvious relationship between short-term debt rate and the competitiveness of a company. In the mature industries, Long-term debt rate and the competitiveness of a company shows negative correlation. Short-term debt rate and the competitiveness of a company show positive correlation. In the recession industries, the more competitive the company, the more inclined to take high long-term debt rate.(3)The relationship between the structure of the industry competition and capital structure shows a certain consistency:in three period, when the industry faced the competition of the industrial,they all inclined to take high debt in order to enhance their competitiveness.(4)Low long-term debt rate and high short-term debt rate is the result of China’s macroeconomic environment and the choices of the industrial. Based on these, this paper puts forward the following policy suggestions:the government should perfect the legal system of the capital market and accelerate the development of the bond market, and at the same time strengthen the supervision of the capital market.This paper was divided into seven parts, each part as follow:chapter one is the introduction, summarizing the purpose, background, methodology and the frame of this paper. Chapter2is consisted of the domestic and foreign review. Chapter3is consisted of the concepts and relative theories of capital structure and the product-market competition. Chapter4analyzes empirically the impact of the product-market competition to capital structure, and puts forward the research hypothesis. Chapter5sets for the variables and the model, including the definition and selection basis of the variables, sample selection and the sources of data. Chapter6analyzes empirically the impact of product-market competition to capital structure, and tests the research hypothesis put forward in chapter4using methods as descriptive statistics and multivariate linear regression analysis. Chapter7sums up the conclusions of this paper, brings up relevant policy-related suggestions, points out the inadequateness, and finally puts forward the vision of the future.