A Study On The Influence Of Managerial Discretion On The Capital Structure Dynamic Adjustment

Capital structure decision-making is a principal financial decision of the enterprise.When the actual capital structure of the enterprise runs counter to the objective,its adjustment is not only influenced by the adjustment cost,but also affected by the willingness of the manager to adjust.The paper concentrates on the influence of managerial freedom of movement,that is,managerial discretion on the revision of capital structure.Firstly,this paper analyzes the economic results of managerial discretion on the capital structure's upward and downward revision from the position power,the pay power and the operation power and then argues that the managerial discretion is “the hand of plunder” to the upward adjustment and “the hand of support” to downward adjustment of the capital structure.Further,this paper studies the impact of managerial discretion on the methods of revision of capital structure to examine the financing methods that the affection of discretion to the revision speed depends on.Then,in order to increase the situationality of the study,the influence of the degree of competition in the industry on the relationship between managerial discretion and the adjustment speed and adjustment method of capital structure is explored.Finally,based on the panel data of China's A-share listed companies in 2005-2017,the hypotheses proposed by the above theoretical analysis are empirically tested.The results are as follows:(1)Managerial discretion restrains the upward adjustment of capital structure and promotes the downward adjustment of capital structure;(2)The restraining effect of the discretionary power on the upward adjustment of the capital structure is achieved by reducing the probability of reducing shareholders' equity and increasing interest-bearing liabilities.However,the promotion of the discretionary power on the downward adjustment of the capital structure is achieved only by increasing the probability of the company increasing shareholders' equity;(3)The degree of industry competition has a restraining effect on management discretion.Therefore,in corporations with fierce competition,the effects of managerial discretion on the restraint of upward adjustment and the promotion of downward adjustment of the capital structure are all weakened.In addition,for enterprises with low competition level,the above-mentioned influence of the managerial discretion on the adjustment of capital structure still exists.For enterprises with high competition level,the influence of managerial discretion on the upward adjustment of capital structure remains unchanged but the effect of managerial discretion on the downward adjustment is not to increase shareholders' equity but to reduce interest-bearing liabilities.This paper confirms that the nature of managerial discretion is the two-dimensional structure of target freedom and behavioral freedom,and enriches the relevant literature in the field of capital structure adjustment from the perspective of managerial discretion.