Economic Policy Uncertainty,Entrepreneurs’ Confidence And Capital Structure

Enterprises use different sources of funds to optimize capital structures and increase market value continuously.Capital structure,determined by contractual relationships between the company owners and other stakeholders through equity or creditors,right,determines the ability to repay debts,refinance and obtain future profits of an enterprise.The research about the influence factors of capital structure has always been a hot issue in academia.The famous MM theory lays a foundation of the capital structure theory,other theoretical ideas are derived from the MM theory.Over the years,domestic and foreign studies all showed that macro-economic conditions produce wide impacts on enterprises’ cash holding,investment structure and financing structure.With more and more studies on different angles and new factors,the explanation of the mechanism behind has been widely diversified.Beside macro-economic factors,other factors like business confidence are unneglectable.Later in this paper,I will explore the impact factors of capital structure through a new perspective,based on micro-enterprise behaviors,tradeoff theory and pecking order theory.On one hand,capital structures are influenced by macro-economic cycle,economic conditions and fiscal/monetary policies.On the other hand,they are also decided by entrepreneurs with different psychological anticipations and cognitions.In summary,I will use three main explanatory variables(economic policy uncertainty、entrepreneurs’ business confidence and their interaction)and a few enterprise financial characteristics to analyze the effect on capital structure,based on the sample of Chinese listed companies’ quarterly financial statement data from 2007 q1 to 2017 q3,and previous studies on capital structure excluding financial firms and "ST"(special treatment)firms,and fully consider the robustness of the results.The results show that:(1)Both economic policy uncertainty and entrepreneurs’ business confidence will affect capital structure and leverage ratio of an enterprise,with high economic policy uncertainty,the effect of entrepreneurs’ business confidence will be weakened,short-term impacts are more significant.(2)Different industries show different levels of influence.(3)Impacts on enterprises are significantly diversified with different ownerships.(4)Impacts are also related to the degree of marketization.The conclusion includes that:(1)In order to decrease negative effects caused by uncertainty,it is very necessary for government to maintain the long-term stability of fiscal/monetary policy.Enterprises can make a more reasonable capital structure based on their anticipations of macroeconomics.(2)Government should pay close attention to those industries with higher impacts,make sure that real economy can be effectively led to rational expectations during the economic downturn,and reduce market panic.(3)Government need to fairly treat enterprises with different ownerships,and thus improve government reputation.(4)Narrowing down the differences of economic system between east,middle and west region will help enterprises improve core competitiveness,increase business confidence and reduce risk costs.