Investor Sentiment And Dynamic Adjustment Speed Of Capital Structure

The basic assumptions of the theory of dynamic adjustment of capital structure are:(1)there is a target capital structure,and the target capital structure changes with the internal and external environment of the enterprise;(2)there are factors such as transaction costs,financial market friction and information asymmetry,which lead to the deviation of the actual capital structure of the enterprise from the target capital structure;(3)the actual capital structure of the enterprise tends to approach the target capital structure.Machine and capability.Therefore,the actual capital structure of enterprises will show a continuous cycle of adjustment process,that is,the process of deviation-approaching-deviation-reaching-reaching of the target capital structure.The core of dynamic adjustment of capital structure is the speed of adjustment.Velocity is a concept of vectors in physics.Vectors are quantities of both size and direction.Traditional research treats the adjustment speed as a scalar,that is,the size of the research speed.This paper gives the significance of "vectorization" of the adjustment speed,that is,not only to study the size of the adjustment speed,but also to study the direction of the adjustment speed.When we study the direction of speed,we find that besides normal adjustment,there are a lot of reverse adjustment and excessive adjustment.This is a very puzzling market anomaly.In order to better study market anomalies,we take investor sentiment in behavioral finance as a starting point to study the mystery behind such market anomalies as reverse adjustment and excessive adjustment.A large number of empirical studies on financial markets in the 1980 s found many anomalies that modern finance could not explain,such as closed-end fund discount puzzle,stock premium puzzle,momentum effect and reversal effect,over-reaction and under-reaction,calendar effect and so on.In order to explain these market anomalies,behavioral finance came into being.Behavioral finance is a new frontier discipline that integrates the theory of psychology,especially behavioral science,into finance.Investor sentiment is an important concept in behavioral finance.After summarizing the existing literature,this paper concludes that investor sentiment has three most important characteristics:(1)irrationality,(2)behaviour,(3)sociality.Irrationality is a psychological state,which is manifested in overconfidence,regret aversion,familiarity preference,etc.Its essence is limited rationality in thinking,that is,thedecision-making process does not follow the optimal decision-making process.Behavior is the external manifestation of irrational thinking,which is manifested in disposal effect,excessive trading,malignant capital increase and so on.Sociality is a systematic group bias driven by oral information transmission,media information transmission and reputation effect.In order to study the relationship between investor sentiment and adjustment speed,this paper studies the relationship between investor sentiment and adjustment speed theoretically and empirically.It not only studies the relationship between investor sentiment and adjustment speed,but also studies the relationship between investor sentiment and adjustment speed direction,and explores some reasons for reverse adjustment and excessive adjustment.In the part of theoretical analysis,this paper analyses the magnitude and direction of the adjustment speed from the perspective of the game between the external impact of investor sentiment and the internal adjustment power of enterprises.The so-called external impact of investor sentiment refers to the disturbance of investor sentiment on corporate financing decisions.Investor sentiment can lead to mispricing of financial assets.When investor sentiment is high,stock prices will be overvalued,and when investor sentiment is low,stock prices will be undervalued.The mispricing of financial assets will affect the financing decisions of enterprises.When the price of financial assets is overvalued,enterprises tend to refinance equity,while when the price of financial assets is undervalued,enterprises tend to refinance creditor's rights.The so-called endogenous adjustment motive force of enterprises refers to the motive force for enterprises to approach the target capital structure in pursuit of maximum value.According to the trade-off theory,when the actual capital structure of an enterprise is in the target capital structure,the value of the enterprise is the largest,and when it deviates from the target capital structure,the value of the enterprise will be impaired.The goal of an enterprise is to maximize its value.Therefore,when the actual capital structure is larger than the target capital structure,the enterprise should have equity financing,and when the actual capital structure is smaller than the target capital structure,the creditor's rights should be refinanced.The size and direction of adjustment depends on the game between the two forces.When external shocks are in line with the needs of enterprises' self-adjustment,the speed of adjustment will accelerate,but if external shocks are too strong,the probability of over-adjustment will increase;when external shocks and enterprises' self-adjustment need deviate fromeach other,the speed of adjustment will slow down,and when serious,the probability of reverse adjustment will increase.In the empirical aspect,this paper takes the data of China's capital market from2011 to 2016 as a sample,and uses the fixed effect model to study the relationship between investor sentiment and adjustment speed.The empirical results show that when the real capital structure is larger than the target capital structure,the adjustment speed accelerates with investor sentiment rising and slows down with investor sentiment falling;when the real capital structure is smaller than the target capital structure,the adjustment speed slows down with investor sentiment rising and accelerates with investor sentiment falling.At the same time,this paper uses logit binary selection model to study the relationship between investor sentiment,adverse adjustment and over-adjustment.Empirical research shows that when the real capital structure is lower than the target capital structure,the higher the investor sentiment,the greater the probability of adverse adjustment;when the real capital structure is higher than the target capital structure,the higher the investor sentiment,the greater the probability of excessive adjustment.This paper provides a theoretical basis for encouraging institutional investors and restricting individual investors.The main reason for investor sentiment is that people are not fully rational,but limited rational.Cognition needs cost.People tend to simplify thinking rather than think deeply,especially non-professional individual investors.Their noise trading results in price distortions in the securities market and has a negative impact on the allocation of resources.Therefore,this paper is helpful to return price to value,optimize the function of capital market on resource allocation,and make our capital market develop continuously and healthily.