Study On The Signalling Effect Of Capital Structure

Since MM theory was proposed in 1958,scholars subconsciously explore the factors that influence capital structure in firms' boundary decided by shareholders,creditors and managers.The basic framework of the research on the signaling theory of capital structure assumes that the financing decision of the enterprise reflects the financial stakeholders of the company,namely,the shareholders and bondholders.From the perspective of non-financial stakeholders,this paper examines the strategic use of financial leverage by supplier in the process of competing with their customers.The empirical result shows that the supplier use "financial leverage" tactically to treat their customers with incentives and penalties,which shows that there is an obvious U-shaped relationship between customer concentration and financial leverage: When the customer concentration is low,in order to attract and induce customers to relational investment,suppliers treat their customers with incentive by reducing financial leverage.On the other hand,when the customer concentration is high,in order to prevent customers' ?hold up" risk,enhance their bargaining power,suppliers treat their customers with penalties by using high financial leverage.Then we make a further study on supplier using "financial leverage" tactically to treat their customers with incentives and penalties.Further results show that when the level of trust between enterprise and its customer is higher,the market power is stronger,the enterprise produces the unique product,The Ushaped relationship between customer concentration and capital structure is more significant.under these circumstances,suppliers have stronger motivation toward using the signal tool of capital structure to treat its customer with incentives and penalties.Finally,based on the current situation of customer-supplier relationship in China,the results of this paper are discussed and the corresponding policy recommendations are put forward.