Managerial Macro-cognition And Capital Structure Adjustment Speed

The dynamic adjustment of capital structure is affected by both internal and external environment.It is very important to combine the macro environment factor of the economy and the micro environment factor of the enterprises when exploring the speed of the adjustment.Considering the special background of our market economy,the macroeconomic environment will affect the financing environment of enterprises and put further effects on their behaviors of capital structure.The manager obviously plays an important role in the connection process from macro environment to micro enterprise behavior.In fact,the behaviors of a enterprise can reflect the corresponding decisions made by their executives.there is small number of literatures pay attention to the difference and use some variables such as academic background,working experience to try to capture the difference between their knowledge structure and cognitive abilities.But these demographic characteristics variables can only reflect the basic psychological structure of individuals,and can not reflect the individual's attention and the process they interpret a specific phenomenon or environmental content.To explore how the differences of managerial cognition and understanding of the external macro environment will affect the capital structure adjustment decision of a company,this paper take advantage of the“Managerial Macro-Cognition”(MMC)indicator which combines the text analysis method of Natural Language Processing(NLP)technology to extract the text of the “Management Discussion and Analysis”(MD&A)and is constructed by Rao pingui,Luo Yonggen and Chencan(2018).Based on the Upper Echelons Theory and the Dynamic Capital Structure Theory,this paper explains how does the difference of managerial macro cognition will affect the company's capital structure decision from the two perspectives.First of all,after reviews relevant researches about the executives' cognition and the corporate capital structure,this paper's argument will procced as follows: Managers with stronger cognition about macro environment can realize the changes outside more quickly,and can make more accurate predictions of the future situation,so they can make wiser and more reasonable capital structure decisions.So that we propose that under the same conditions,the enterprise has executives with higher macro cognition can adjust its capital structure faster.After the MD&A was divided into backward and forwardlooking,we find that the promote effect on dynamic structure adjustment of executives' macro cognition in the forward-looking is more obvious.It is because the backward part reflects the managers' objective analysis of historical information and the forward-looking part reflects the management's subjective judgment on the future situation.Besides,this paper also test the results according to different situations such as: financial constraints,monetary policy and equity concentration.This paper takes A-share listed company on Shanghai and Shenzhen Stock Exchange from 2002 to 2018,constructs the standard partial adjustment model to estimate the speed of capital adjustment of the enterprise,and use the extended model to do the regression analysis.Use the Least Square Dummy Variable Correction method(LSDVC)is in the estimation process and control the company-year fixed effect in the regression process.The empirical results show that under the same conditions,the enterprise has executives with higher macro cognition can adjust its capital structure faster,the promote effect on dynamic structure adjustment of executives' macro cognition in the forward-looking is more obvious.Besides,when the company is faced with financing constraints,tight monetary policy and low equity concentration,the impact of executives' macro cognition on the adjustment speed is more obvious.Finally,based on the empirical results,this paper puts forward some relevant suggestions for the enterprises,the policy makers and the investors.