Can High Debt Increase The Value Of The Company

The capital structure represents the composition of the company's liabilities and its owner's equity,and the capital structure determines the amount of debt and equity.The capital structure choice is one of the three major financial decisions(investment policy,financing policy and dividend policy)for a company.Among them,capital structure is the key point of financing decisions,especially its relative dependency on debt and equity.The study of capital structure has always been a hot topic in corporate financing.Capital structure has important significance for the operation of a corporate.It can affect a company's risk,profit distribution,governance structure,market value and many other important aspects.Many scholars have done a lot of researches on capital structure.Jensen(2001)indicates that among most financial economists the criterion for evaluating performance and deciding between alternative courses of action should be maximization of long-term market value of the firm.He notes that this value maximization proposition has its roots in 200 years of research in economics and finance.For publicly-held firms,the maximization of shareholder wealth is reflected in the market price of the stock.By maximizing shareholder wealth,managers are serving the interests of the firm's owners as residual claimants.Under most circumstances,the premise of maximizing total firm value is also consistent with maximizing shareholder wealth.Many studies are about the impact of total debt on corporate performance and market value,but there are few literatures about the influence of capital structure on market value.This paper studies the effect of total liabilities,debt maturity structure and financing sources on company's market value.Since the days of the industrial revolution,access to clean,affordable and reliable energy has been a cornerstone of the world's increasing prosperity and economic growth since the beginning of the industrial revolution.In the twenty first century,the world economy developed rapidly,economic growth has been powered largely by fossil fuel.Nevertheless,since fossil fuel is a finite resource that will become scarcer,non-fossil energy must eventually predominate.Fossil fuels such as coal and oil combustion will produce a lot of waste in many areas,the haze is serious year by year in China,which will affected by the use of the fossil fuels.It is vigorous to develop clean energy.Chinese government has issued a lot of laws and rules to support the development of new energy since the issuing of THE RENEWABLE ENERGY LAW in 2006.The research on capital structure of new energy industry has an important significance.Because of the capital intensive,the financing effect of the new energy industry is of significantly important.In this paper,according to the development of the theory of capital structure,the theoretical literature has been reviewed,and the financing methods are divided into three categories according to different standards.Then,based on the MM theorem and pecking order theory,this paper studies the influence of capital structure on the market value of the company from three aspects:total liabilities,debt maturity structure and financing sources.In this paper,we compare the two indexes,which are market value ratio(market value/total assets)and Tobin Q(market value/net assets).The empirical results show that China's new energy listed companies and the market value of the company's debt levels negatively correlated;liabilities from the deadline,non-current liabilities and current liabilities have a negative impact on the market value of the company:from the financing source,China's new energy listed companies follow the pecking order theory and balance theory.The degree of development in different regions,the economic level of our country is large,and it is the key factors affecting the financing effect,so this paper then influence regional test of debt maturity structure,financing source of market value of listed companies of the new energy.The test results in different regions:from the maturity structure of debt:non-current liabilities rate on the impact of the eastern,Western and northeastern regional corporation market value is negative,the eastern and central regional corporation is not significantly affected.From the point of view of financing sources:the impact of regional financing rate on the market value of new energy listed companies is positive.In the west,the east and the middle of the New Energy Company,the first choice will be endogenous financing,and in debt financing and equity financing,not necessarily the first choice of debt financing.This result is related to the financing environment and system of our country,and is also related to the profitability of listed companies and the characteristics of the industry.For this reason,this paper also puts forward some policy suggestions.