Research On Dynamic Optimal Capital Structure Of Chinese Enterprises

With China’s economy has stepped in to "New Normal",debt ratios of China’s enterprises have experienced a rapid growth.Majority of sunset-industries using debt to maintain their excess capacity,meanwhile,limited by China’s inefficient finance system,many prosperous firms cannot contribute on economic growth.As a result,Chinese enterprises are trapped in a structural dilemma.In the crucial period of China’s transformation of economic structure,lowing leverage has become a hot issue during Central Economic Working Conference.By ignoring inconsistency of dynamic panel estimation,precursors’ explorations on capital structure of enterprises are mainly based on a static model or a fix effect model with lagged leverage ratio.Their researches suffer from an inaccuracy of dynamic panel estimation;therefore,the real effect can be further improved.This article base on a general trade-off theory framework,a systematic retrospect of capital structure theory and the features of China’s financing environment,provides with readers a dissect and an analysis of dynamic capital structure of Chinese firms.This article aims at offering an academic explanation of why it is pervasive that leverages ratio of Chinese firms are pretty high,and offering advices to decision makers of firm operators.This article uses a sample period from 2012 to 2017 with 2324 on list firms,and builds a dynamic model with cross-term and sample grouping method from microcosmic,middle and macroscopic view.To make a more persuasive argument,this article also applies a robustness check and double check with a newly build dynamic proxy model.The empirical study of this article can be concluded as following:Firstly,Chinese firms choose their capital structure mainly based on Trade-off theory and there do exist an optimal capital structure;Secondly,profitably and growth characteristics are not consistent with the prediction of Trade-off theory,probably because of ’credit crunch’ phenomenon induced by firms’ low bankruptcy cost owning to Chinese government’s protection and high growth firms using debt to restrain over investment;Thirdly,leverage ratios of SOEs are significantly higher the non-SOEs,implying a conjecture that SOEs facing a much looser financing environment comparing with non-SOEs;Fourthly,crowding-out effect made by firms non-debt-tax-shield(NTDS)to tax avoidance will be amplify by comprehensive effect of firms’ financing demand and environmental factors,this article believes that financing cost brought by earning management will induce more concerns of firms management after concerning about financing demand of themselves and macro factors,as a result firm management will consider more about NTDS and lower its enthusiasm of debt financing;Fifthly,the more a firm rely on financing,the less it will be influenced by macro credit,meanwhile,the more a firm rely on financing,the stronger the tendency to choosing equity finance in a loose equity financing environment.Moreover,robustness checks also bring some insights:Firstly,volatility of real-estate industry and science and technology and culture industry are very low,leverage ratios are consistent in these industries;Secondly,China’s collateral-base credit allocation culture makes the impacts that credit scale make to firms’ leverage closely related to the discourse power of a firm in credit market(often related to mortgage abilities of assets).Last but not least,this article equipped with a stronger logic and more persuasive model owning to systematic GMM estimation and sample grouping method.However,this article is still imperfect because of the imperfection of Trade-off theory itself,and sample time horizon may be another potential fallacy.Noticed by the author,’credit crunch’ phenomenon of banks,crowding-out effect induced by earning management and many more sparkles can be further studied.Due to time limitation,such topics cannot be discussed is such short article.