Institutional Environment and Capital Structure: Evidence from Private Listed Enterprises in China

Abstract

With the rapid development of modern market economy, in order to safeguard the comprehensive competitiveness, enterprises adjust their capital structure based on the external and internal environment. In the selection of enterprises’ financing policies, especially the debt decisions, the macroeconomic condition will be an important factor (Korajczyk and Leny). Studies suggest that macroeconomic condition has great impact on the pace and scale of the capital structure adjustment and the companies’ liabilities (Dirk Hackbarth ect. 2006; Douglas O, Cook and Tian Tang, 2009). The capital structure determines structures of long-term debts and equity capital. The analysis on debt structure and benefits and risks of enterprises is of great importance to maximize the value of enterprises. On the basis of introducing the development of the capital structure theory, this article investigate an important issue in the area of financial economics by analyzing the main factors affecting capital structure and focusing on system environment which has not been fully studied. This article employed empirical method to analyze data of private enterprises in different areas during 2007-2009 which had been listed in Shanghai and Shenzhen stock exchange markets. The conclusion is that changes of the following five factors, government intervention degree, non-state-owned economic structure, market structure, financial structure of commercialization combine with legal system, have great impacts on the capital structure and the development of private enterprises.