Research on the Countermeasures of Optimizing the Capital Structure of Listed Companies in China

Abstract: Enterprise capital structure is the main factor that affects enterprise governance structure. At present, China's enterprise reform is advancing in depth, and whether the capital structure is reasonable will directly affect whether the enterprise can achieve long-term development in the market. Therefore, it is urgent to optimize the capital structure. Taking China's state-owned listed companies as the research object, starting with the factors that affect the capital structure of enterprises, this paper investigates the present situation of their capital structure, analyzes its causes and consequences, and on this basis, thinks about the optimization of capital structure, and puts forward some opinions and suggestions. ?

Keywords: listed companies; Capital structure; Optimization?

1 criteria and influencing factors of modern capital structure optimization?

As an enterprise itself, the goal of its operation is to maximize profits, and the purpose of investors investing in enterprises is also to maximize investment income. Therefore, the optimal capital structure of enterprises should be to maximize the profits of enterprises and investors. Taking the maximization of market value as the goal of evaluating enterprise capital structure, the implicit assumption is that the maximization of enterprise market value is unified with the maximization of enterprise profit and the maximization of investor investment income. However, due to the blindness of the securities market, the changing directions of stock prices and corporate profits are often inconsistent, and in modern enterprises characterized by the separation of the two rights, the goals of enterprise investors and operators are not consistent. Therefore, this assumption is untenable. ?

In addition, the market value of an enterprise consists of stock market value and bond market value. However, China's securities market is still underdeveloped. In this case, it is difficult to correctly determine the market value of most enterprises. Therefore, it is not feasible to evaluate the capital structure of enterprises with the market value as the standard. ? It can be seen that the maximization of enterprise market value cannot be the standard of enterprise capital structure optimization, and the optimization of enterprise capital structure should be based on the unity of double standards of enterprise profit maximization and investor investment income maximization. ?

From the standard of capital structure optimization, enterprises should have the best capital structure, but it is difficult to find this optimal structure accurately in reality. Because the optimization of capital structure is influenced by many factors. The first is the cost of capital. One of the fundamental purposes of capital structure optimization is to make the comprehensive capital of enterprises the lowest, and the capital cost of different financing methods is different. The second is financial risk. In the process of pursuing financial leverage, enterprises will inevitably increase the intensity of debt financing, which will increase the financial risks of enterprises. Therefore, we must fully consider how to control the financial risk within the tolerable range of enterprises. The third is the long-term stability of enterprise management. The use of financial leverage by enterprises must be limited to the range that does not endanger their long-term stable operation. The fourth is the profitability of enterprises. Enterprises with higher profitability use less debt capital because they can solve the financing problem through more internal accumulation. The fifth is the enterprise asset structure. Enterprises with different asset structures have different abilities to use financial leverage. There are more mortgage loans for real estate companies and fewer technology development companies. ?

2. What are the current situation and reasons of capital structure of state-owned listed companies in China?

2. 1 High bank loan ratio?

Before 1980s, the main source of funds for enterprises in China was financial allocation. After the implementation of "allocating loans instead of loans", bank loans became the only external financing method for enterprises. Until the end of 1980s, the financing methods of stocks and corporate bonds came into being. Banks have very low loan requirements for state-owned enterprises. Later, although the requirements for mortgage loans were strengthened, bankruptcy procedures were rarely implemented for enterprises that could not repay loans, and the soft constraints of banks on loan enterprises led to high debt ratio of enterprises. ?

2.2 High proportion of stock financing?

The cost of capital is the rate of return that investors are willing to provide after considering the status quo. The necessary rate of return of any investment is the lowest rate of return that investors are willing to provide funds for the current investment. The capital cost of bank loans is the lowest, followed by corporate bonds and stocks. However, due to the short history of China stock market, the share price of the secondary market is overvalued most of the time. Enterprises often regard stock financing as a free lunch and only regard its cost as a dividend to be paid. ?

2.3 Small proportion of internal retained earnings?

Like most developing countries, China's internal financing ratio is lower than that of developed countries. During the expansion period, China's internal accumulation is not much, and its asset-liability ratio is generally high. In the growth period of enterprises, the rapid expansion of enterprises requires a lot of external funds, and enterprises will rely more on financial institutions such as banks, so the proportion of debt financing is high. ?

2.4 Small proportion of bond financing?

The cost of bond financing is lower than that of stocks, and the tax law stipulates that bond interest should be paid before going to bed, so bond financing can also bring tax avoidance benefits to enterprises and increase after-tax profit per share. However, due to the unbalanced development of China's stock market and bond market, the development of bond market is seriously lagging behind, and the issuance of bonds by enterprises is controlled by government quotas, which makes the space for enterprises to raise funds through bonds very small.

3 Suggestions on optimizing the capital structure of listed companies in China?

First of all, we see that there is asymmetry between debt ratio and capital profit rate. A certain proportion of liabilities can bring tax avoidance effect to enterprises, as well as positive effects such as constraints and incentives to operators. But the higher the debt, the better, and it must be controlled within a certain proportion. Several factors should be considered when determining this range. The basic premise for enterprises to choose projects is to ensure profitability or at least balance, which requires that the expected profit rate of borrowed funds should not be less than the loan interest rate. In addition, in order to ensure that the overall capital of an enterprise remains profitable or at least flat after borrowing a certain amount of funds, the expected profit rate of enterprise borrowing is required to be greater than or equal to the weighted average cost of capital rate. ?

Secondly, state-owned enterprises have an excessive preference for equity financing. Enterprises generally believe that issuing stocks is different from issuing bank loans and bonds, and there is no need to repay principal and interest at maturity, which can increase profits and improve business efficiency. Therefore, China's state-owned enterprises generally regard stock financing as the first choice of enterprise financing, and strive to expand the issuance quota, and the dividend distribution policy is mostly based on allotment. ?

But we must see that there is no such thing as a free lunch, especially in the capital market. Excessive equity ratio will seriously affect the operating efficiency of enterprises. Creditor's right is a hard constraint for enterprises, while equity constraint is relatively soft constraint. The capital structure with high equity ratio will only lead to weak supervision of enterprise managers, insufficient pressure for enterprise managers to work hard, and ultimately harm the interests of shareholders and creditors. Moderate debt management can reduce the capital cost of enterprises and bring tax burden structure benefit and financial leverage effect, while excessive equity ratio obviously cannot obtain the above benefits. ?

According to the above analysis, we can see that optimizing the capital structure of state-owned listed companies in China should start from two aspects:?

On the one hand, the key to optimize the capital structure of state-owned enterprises lies in changing the abnormal relationship between state-owned banks and state-owned enterprises, and changing the status quo that the state as the owner and state-owned banks as creditors have softened the constraints on state-owned enterprises. The owner of an enterprise shall be liable for the debts of the enterprise within the limit of the capital contribution. Once the enterprise is unable to pay off its debts, the owner should not hinder the creditors from auctioning the bankrupt property of the enterprise; At the same time, the owner has the right to control the debt behavior of the enterprise and stop the behavior of the enterprise that harms the owner's interests in time. In addition, the creditor bears the risk of creditor's rights investment, inspects the loan project of the enterprise in strict accordance with the requirement that the financial risk is proportional to the financial cost, and adjusts the loan interest rate. If the risk exceeds the risk that the enterprise can bear, the creditor insists on not lending. Finally, introduce a variety of investors into the enterprise and establish a reasonable creditor's rights and equity structure. ?

On the other hand, due to the unreasonable consideration of the ownership structure of state-owned enterprises in China, we should reduce the proportion of state-owned shares and realize the diversification of equity owners. In addition to the country as a major shareholder, banks, corporate entities, investment funds, employees and the public should all be included. In particular, increase the shareholding ratio of corporate investors. At the same time, the share of enterprise managers' equity and stock options should be appropriately added to realize the proportion of total enterprise owners. There should be no fixed boundary, but it should be related to the scale and long-term development plan of the enterprise. ?

4 conclusion?

In short, optimizing the capital structure is to optimize the debt ratio level, corporate financing level or the composition between the two. The debt ratio will not only affect the overall pre-tax rate of return, but also increase the after-tax profit due to tax avoidance effect. Therefore, it is wrong to use debt-to-equity swap as a method to solve the economic difficulties of enterprises. Although after the debt-to-equity swap, the interest expense of the enterprise drops, and the debt repayment pressure no longer exists, the change of the debt ratio will only change the financial risk structure of the enterprise, rather than the decisive factor for the enterprise to turn losses. Therefore, in order to change the present situation of enterprises in China, it is necessary to adjust the debt ratio and financing level to optimize the capital structure. ?

Reference materials?

Chen Xiao and Dan Xin. Whether bond financing will increase the financing cost of listed companies [J]. Economic research, 1999, (9).

[4] Shen Yifeng. A Quantitative Study on the Capital Cost of Listed Companies in China [J]. Economic Research, 1999, (1 1).