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Owner’s Equity Constitution’s Impact on Capital Constitution

Author: XiaZongWei
Tutor: FuDaiGuo
School: Southwestern University of Finance and Economics
Course: Accounting
Keywords: Constitute equity Capital formation Affect Listed companies Empirical Analysis
CLC: F275
Type: Master's thesis
Year: 2009
Downloads: 105
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Abstract

Marx's ideology is based on the residual value of capital structure as the central areas, according to the different parts of the capital in the production of surplus value and divide up the different roles of the process is divided into a certain capital structure, detail from production to distribution and allocation of capital from individual to analysis of the total social capital produces surplus value, accumulation, realization and distribution. Compared with Western capital structure theory, which basically corporate financing structure and financing decision theory, more concerned about the micro-level issues, part of a business (company) theories of capital structure. And Marx's theory of capital structure both research and production processes, but also the process of circulation and distribution, both of individual capital movement, movement of the total social capital, therefore, it is one of the most broad sense, is the most basic of social capital structure theory. The capital structure of social enterprise (company) capital structure for the existence of conditions and environment, influences and restricts the enterprise (company) capital structure, therefore, Marx's theory of capital structure in terms of methodology, or in the specific content, our research enterprise (company) capital structure still has an important role in guiding. Modern capital structure theory is the starting point of Modigliani and Miller (Modigliani Miller) 1958, published in the \Modigliani Miller (MM) is a set of theorems conclusion, indicating that the assumption of an ideal market, the enterprise value has nothing to do with the company's financial decisions. This theory is based on Modigliani and Miller in 1958 began to publish a series of papers on top of, and in the Franco Modigliani (Franco Modigliani) and Merton Miller (Merton Miller), respectively, won the Nobel Economics Prize is referenced. Although it is generally acknowledged that the company's financial decision-making is very important, MM theory is still the core of the modern theory of corporate finance. MM theory following major elements: (1) Proposition Ⅰ. The total market value of the company and its capital structure irrelevant. (2) Proposition Ⅱ. The company's cost of equity capital is its debt-equity ratio of linear increasing function. (3) Dividends same proposition. The company's total market value has nothing to do with its dividend policy. (4) shareholder apathy proposition. Company's shareholders on the company's financial decisions indifference. These propositions derived from the following corollary: that is the same price if the shareholder can take the same financial transactions and the company, as long as the shareholders are willing, they can be completely offset any effect of financial decisions, and without any costs. Modigliani and Miller made the interpretation of the first three propositions, shareholder apathy proposition implicit in their analysis, while other economists in a different frame is explicitly stated. Extensive literature targeted at MM conclusion does not apply to one or more situations, the MM theory or challenge or a new diagnostic interpretation. In most cases, due to asymmetric information, transaction costs, taxes or restrictions on short selling, investors should not be taken at the same price and the company the same financial transactions. The emergence of the MM bankruptcy invariant conclusion is not fatal, but to, as the case may be. The impact of taxation on MM reasoning is the basis for most of the work of another, and also by the Modigliani and Miller (1963) cause. When the company's management staff have information about the company and the shareholders do not know when the financial decision-making is not independent. From the beginning the 1970s, researchers have to focus on a very important part of the decision by the agency cost model of capital structure, namely the cost of conflict of interest. Jensen and Mike Linding Yi two types of conflicts. Shareholders and conflicts between operators because the operators are not one hundred percent control of residual interest, so they can not get all the profits of profitable behavior, have to pay all the costs of these actions. For example, the operator can manage enterprise resources is not so hard, you can put into corporate resources for their own interests, such as through the enjoyment of \Operators to control these acts burden of all charges, but only get a small portion of benefits. Thus, the operators of these levels with the company concerning the pursuit of maximizing the value of splurging on. Greater share of the Company's shares operators, this inefficiency will be less. To keep the operator in the company's absolute investment unchanged, increasing the proportion of debt financing in the company will increase the operator's shares, and reduce by the operator and shareholder losses caused by the conflict. In addition, as proposed by Johnson in 1986, because the company needs to be paid in cash bonds, reducing the operator for the squandering of the \Operators and ease the conflict between shareholders that the benefits of debt financing. Creditors and shareholders are the causes of the conflict between shareholders debt covenants stimulate suboptimal investment decisions, more particularly debt covenants provides that if the investment is much higher than the par value of bonds gained tremendous gains, shareholders will receive most of the profits. And if the investment fails because of limited liability, the creditors will bear results. Accordingly, shareholders may range from \This investment will result in the value of the bond reduced. Poor investment losses caused by the stock value will be greater than the loss incurred by the creditor value of the stock returns. But when the bonds were issued, if the creditor the right to expect that future actions to shareholders, shareholders will bear this cost on behalf of creditors. In this case, the shareholders get the profits from the bond will be less. This generated by the bonds, investment incentives on the project in the impairment costs will be borne by the Shareholder to issue bonds. This effect is generally referred to as \Jensen and Meckling pointed out that the optimal capital structure is composed of agency costs of debt is exactly equal to the previously mentioned debt income obtained. There followed a number of conclusions: First, people want to be able to package bond indentures to prevent asset substitution problem, such as interest coverage needs, prohibit new investment in unrelated industries and so on. Second, if other conditions are the same, the occurrence of more limited opportunities for asset substitution industries will have higher levels of debt. For example, the theory predicts that regulated utilities, banks, and development opportunities for smaller companies within mature industries will have higher levels of debt. Third, the slow growth or even negative growth companies as well as the best operational process will bring a lot of cash inflows company should have more debt. A lot of cash inflows, and no good investment prospects, the resulting consumer special treatment; build \Increased debt reduces the \According to Jensen (1989) discussion of the industry at present with these characteristics include iron and steel, chemical, brewing, tobacco, television and radio broadcasting, wood paper industry. The theory predicts that these industries are characterized by high debt ratio. Since then, an external shareholder ownership and insider ownership proportion and composition as the core content of the shareholding structure of the impact on the capital structure to become a hot academic discussion. Existing research from the domestic point of view, many scholars focus on research ownership structure and firm performance, and in the ownership structure on the capital structure of this field of study explored much. The ownership structure of listed companies affect capital structure? Article ownership concentration, national ownership, corporate ownership, management ownership, the proportion of public shares as independent variables included in the analysis, trying to discover in this regard . This paper is divided into six parts. The first part is an introduction, the second part is the theoretical review and literature review, and the third part is the shareholding structure of listed companies, while the fourth part is the empirical testing and analysis, the fifth part of the capital structure prediction based on MATLAB model, Part VI is the study concluded. The first part introduces the research background, research objectives and research significance, as well as research methods and research paper ideas. The second part reviews the capital structure theory and shareholding structure theory and made some evaluation, and introduces capital structure metrics and common ownership structure metrics, indicators designed to do for the following theoretical groundwork. In addition, the author reviews the existing shareholding structure Capital Structure empirical research results, overall, academia has not yet reached the same conclusion, this is an empirical test of the author will be one of the motives. Third part describes the impact of the share reform of listed companies structure the status quo. The fourth part presents six research hypothesis that ownership concentration positively correlated with the equity ratio, the proportion of state-owned shares to equity ratio positively correlated with the proportion of domestic legal person shares a negative correlation with the equity ratio, the proportion of foreign legal person negatively correlated to equity ratio, the proportion of public shares a negative correlation with the equity ratio, managers and shareholders' equity stake positively correlated. For different hypotheses, the author were designed six different explanatory variables, the first largest shareholding ratio, the proportion of state-owned shares, the proportion of domestic legal person shares, foreign legal person ratio, the proportion of public shares, managers stake. In addition, since the ownership structure is not the only factor affecting the capital structure, the author designed the four control variables included in the analysis of these factors, four variables are the size of the company, the value of asset-backed, non-debt tax shield, profitability. Empirical tests will be included in the regression equation of these control variables. Through six regression equation inspection, domestic and foreign legal person legal person shares the impact on shareholders' equity ratio satisfy the linear correlation between the variables of the linear relationship between the remaining four were approved. The fifth part of the fourth part of the test is not a linear relationship between variables using MATLAB nonlinear correlation analysis, the results confirm ownership concentration nonlinear correlation to equity ratio, the proportion of state-owned shares to equity ratio nonlinear correlation, social the proportion of public shares and shareholders 'equity nonlinear correlation, managers and shareholders' equity stake nonlinear correlation. Sixth section outlines the main conclusions of this paper as well as innovation of this paper and Prospects. This is the biggest innovation in the nonlinear dependence on model building.

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