The determinants of Capital structure: Evidence from Chinese listed companies

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The determinants of Capital structure: Evidence from Chinese listed companies

1.0 INTRODUCTION

The capital structure of firms is perhaps one of the topics of finance Corporate most studied in recent times. The pioneering work of Modigliani and Miller (1958) which opens the debate on this issue a number of assumptions simplifying the characteristics of capital markets and reaches the known conclusion that in perfect capital markets, the value of a firm is independent of its capital structure, a result that is now known as the the first proposition of Modigliani - Miller (hereafter MM) who have long was a paradigm of modern corporate finance.

The review and in some cases the removal of simplifying assumptions about the which underlies the results, the use of more detailed information and design new methods of estimation provided results generally deviate of the originals, showing that the structure of capital depends on or is determined by various factors. These contributions led to the now called hypotheses or theories try to explain the causes of this variation in the coefficients of indebtedness of firms, among which include the so-called "balance static ", the" asymmetric information "and" theory or hypothesis of the hierarchical order. "

They were also many empirical studies designed to test these theories, but most of them were conducted in developed countries that have similarities institutional, and especially the United States where they have lots of information. Some studies examined the capital structure of similar firms developed countries in obtaining evidence to indicate the presence of commonalities in the determinants of capital structure. The results of these studies suggest that factors such as tax, bankruptcy laws, the market for corporate control 1 , The firm size, the structure of their assets Fixed - that act as collateral for obtaining loans - opportunities growth and profitability influence the leverage of the firm. But a series of relatively recent extended the original approach determining the optimal capital structure primarily to try 1 Faced with a threat of takeover the firm may choose to increase the leverage to the commitments for future payments to subtract attraction that acquisition. Page 3 3 determine the effects of the macroeconomic environment in which they operate companies, as the domestic financial market size, growth economy and inflation, among others. Other studies also began to consider the impact of market liberalization on the prices of assets, investment decisions and capital structure of firms as a result of the increasing integration of world economy, a phenomenon known as "Globalization", local markets come into contact with the rest of the world.

Given this background, this paper seeks to analyze the impact of main determinants postulated by traditional theories, such as taxes, opportunities for growth, profitability and asset tangibility, have on capital structure of companies in Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela, to examine the commonalities or differences that exist between them and finally compare the results with those obtained in similar ...