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An Empirical Analysis of the Financial Leverage Effect of Listed Companies

Author: ZengWeiJun
Tutor: LiYuZhou
School: Southwestern University of Finance and Economics
Course: Accounting
Keywords: Capital Structure Debt financing Financial Leverage Financial leverage effect Analysis of financial leverage effect
CLC: F275
Type: Master's thesis
Year: 2009
Downloads: 1443
Quote: 1
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Currently, the the enterprise total capital of the United States, Japan and Britain, and other developed countries, the percentage of its own funds and less and less, the United States is about 25%, in Japan for about 10%, 17% in the United Kingdom. The increasing globalization of the world economy and in-depth development of China's market economy, China's enterprises are facing increasingly fierce competition. Economically developed countries, China With the rapid development of the market economy and the diversification of financing channels for enterprises, corporate capital entirely by investors to provide the phenomenon has rarely happens liabilities operation has become China's enterprises commonly used financial strategy. Debt financing is the company through the issuance of bonds, loans to banks, finance lease and other ways to raise funds. Enterprises to adopt the way of debt financing to raise funds, due to the repayment of principal and payment of interest, and to bear a greater risk compared to equity financing, but to pay the cost of capital is lower. The total capital structure is established, the companies need to pay interest on the debt from the EBIT is fixed. EBIT increases, the cost of the financial burden of every dollar surplus will be relatively reduced, it will bring more surplus to common shareholders; Conversely, it will significantly reduce the ordinary shares of surplus, not only can not operate from liabilities to benefit, must also pay a higher price; In addition to using the profits to pay interest, but also may have to pay penalty interest, forced to cheap auction or mortgage assets, causing corporate stock prices, and serious cases will make bankruptcy. The end of the last century, the collapse of South Korea's Daewoo Group, is a true reflection of the negative effects of financial leverage. Enterprise financial management goal is a reasonable use of financial leverage to increase the rights and interests of enterprises, optimizing the capital structure, to control financial risk. However, China's listed companies on the financial leverage and not enough attention, there are some problems and their utilization. Western scholars have done from different angles on the financial leverage of theoretical and empirical research, research results to mature into practice. Chinese scholars on the financial leverage of the research is still in its infancy, the theory has not yet formed a relatively perfect, in line with China's national conditions, financial leverage application of theory to guide the practice of Chinese enterprises. There are many problems and many of our corporate financial leverage. Some companies in the case of a higher level of profitability, lower rate of assets and liabilities, ignoring the use of financial leverage; while some companies in the case of the low level of profitability, in spite of the risks of debt management to enable enterprises to maintain a high The level of public debt, faced with a high financial risk. More enterprises is difficult to make a correct judgment of the appropriate level of financial leverage, which is difficult to raise development required for the appropriate amount of money, and select the appropriate financing channels to build a capital structure for the enterprise optimal. In 2008, the subprime mortgage crisis in the United States to the global economy had a huge impact, also made what should make rational use of the funds of the liability class. Therefore, China's financial practice, the enterprises should strengthen financial leverage dynamic analysis to study the impact of financial leverage on corporate finance, reveal liabilities management problems and weaknesses in a timely manner, to take appropriate measures to adjust the capital structure, clear liability operation unfavorable factors, the rational use of financial leverage, the profitability of the corporate equity capital to grow steadily. How to make better use of financial leverage this \The first Sino-foreign academia to conduct a comprehensive analysis of the financial leverage research, which is more representative of the literature is reviewed. Grossman and Hart (l982) in the company's capital structure and management incentives, \the loss of power of attorney; Kim and IL - Woon (1985), \free cash flow theory; Sandberg: the one hand, the high debt ratio management authorities used to block the company was forced to restructuring and acquisitions and new default risk and debt management, on the other hand gave corporate strategists. \The Fengtai Feng, Yang (2007) proposed a new understanding of the leverage effect in financial management indicators reflect the comprehensive risk the upcoming Joint leverage factor is defined as six lever multiplied by the coefficient, thus with serial replacement method further analysis each type of risk on the role played by the integrated risk, the a single leverage effect and joint leverage effect analysis combine to provide more valuable information for decision-making, corporate financial management decisions. The second part provides an overview of the theory of capital structure and financial leverage. The theory of capital structure, including net income theory, MM theory, agency theory, the level of financing for the theory. Followed by the introduction of the concept of financial leverage and measurement of key indicators of financial leverage and impact analysis of the root causes of the financial leverage effect and the internal and external factors, including agency costs, the financial constraints of cost, tax-efficient and effective, the degree of competition in product markets and lenders and credit rating agencies. By descriptive statistical analysis at the end of the financial data of listed companies for three years in Shanghai and Shenzhen listed companies in the third part of the draw the overall level of financial leverage based on the degree of financial leverage its role classification, and in accordance with different in their respective professions, financial leverage, the degree of financial leverage, total assets EBIT margin, net assets yield indicators to analyze, summarize the classification of financial leverage. It follows that: three years listed company's financial leverage and its role in the degree of population mean increasing year by year, but the poor financial leverage effect, China's listed companies on the use of financial leverage is not rational, scientific; DFL [1,2 this interval, the EBIT reached the maximum possible, listed companies should give this attention; significant differences in the capital structure exist between industries, and the use of financial leverage effect there are also significant differences. The main contribution of this paper is: at the end of the paper, put forward their own proposals. First of all listed companies in China should be based on the specific circumstances of each enterprise analysis, corporate capital structure of different environmental factors, each firm's optimal level of financial leverage should be determined according to the specific situation of enterprises. In the development process, the enterprise can take advantage of the financial leverage to expand enterprise scale build corporate dominance in the competition in the industry, and strive for more market share, but also to see the negative effects of the financial leverage of corporate debt financing constraints force; followed by corrective equity financing preference of China's listed companies, the role of the \Third, enhance financial flexibility and financial flexibility in the current financing strategy should be based the financing capacity increase in the future as a precondition to create the conditions for the future development of enterprises need debt financing again, in the use of financial flexibility and financial leverage seek balance, and enhance the flexibility of the company's financial leverage level, as corporate internal and external changes in the environment, may have a role in promoting the sustainable development of enterprises financial leverage enterprise development to impede, also may originally enterprise development from the adverse effects of financial leverage into factors promote the development of enterprises. The dual role of changes in the environment and the financial leverage allows businesses should maintain a flexible, have the ability to adjust the capital structure. Fifth, the change of the listed companies prefer the the exogenous financing of the status quo, improve the ability of the source of financing in the listed company. Which requires listed companies to strengthen their own management, the development of the company's main business continues to improve its core competitiveness, improve the efficiency of the use of funds, so as to enhance the level of performance and profitability of the company, in order to improve the company's financing capacity of endogenous. Sixth, so that the level of financial leverage and corporate cash flow is expected to match the match, the level of financial leverage and the expected cash flow to keep enterprises adequate ability to repay debt, corporate security operations, an important measure of sustainable development. Seventh, to optimize the equity structure of listed companies to improve internal and external governance structure, optimize the shareholding structure. Eighth, the establishment of the enterprise risk control mechanism, enhance and optimize the policy supervision. According to the specific circumstances of the relevant information collection, collation, processing, analysis, develop a plan to respond to a variety of risks, reduce enterprise risk factor to the lowest financial leverage decisions correctly determine a reasonable balance scale and liability structure. At the same time improve the enterprise management level, strengthen liabilities operation and management. Contribute to the rational use of financial leverage. Deficiency of this article: 1, due to the short time of the development of China's stock market and information imperfections in the early stages of development as well as the change of the accounting system, made of listed companies investigated a relatively short period, using only the data of 2005, 2006 information, which will allow changes in the capital structure of some of the inherent laws can not be reflected. 2, subject to the limitations of the data collected, the article does not constituted liabilities's internal further decomposition, and the capital structure is the book value, did not consider the market value, which will also result in some impact.

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CLC: > Economic > Economic planning and management > Enterprise economy > Corporate Financial Management
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