An Empirical Study on the Correlation between Capital Structure and Firm Value from the Perspective of Different Monetary Policy

Abstract

Monetary Policy is the main tool of the national macro-control. This paper combines the time-lag of Monetary Policy in real estate listed companies to divide the time of different Monetary Policy, select 51 real estate listing companies’ data in Shanghai and Shenzhen Stock Exchange as the sample, and then targets the difference Monetary Policy to study on the correlation between capital structure and firm value with factor regression and linear regression. The empirical results showed: Capital structure and firm value showed a negative correlation. Degree of the relevance between capital structure and firm value under tighten Monetary Policy is stronger than under loose Monetary Policy. INTRODCTION With the advent of the MM theory in the nineteen fifties, researches on capital structure tends to be thorough, which from the empirical research into the derivation and mathematical statistics analysis. Scholars have conducted a series of empirical analysis to study the correlation between capital structure and firm value. Studies on the relationship between the two are mainly in the following four conclusions in domestic and foreign. Capital structure is positively correlated with firm value. Jensen and Meckling (1976) considered the principal-agent cost, and they thought firm value can be maximized when marginal revenue and expenditure which debt financing brings are equal, namely there is an optimal capital structure of corporate. Harvey (2004) started from agency theory and their results of the research showed that debt played a restraining role for management and forced managers to operate hardly to enhance the solvency of company, so increase the debt ratio can improve firm value. Wang and Yang (1998) found that the profitability of China’s listing companies showed a rising trend with the liabilities rate increased. Wang Ying had researched family manufacturing listing company in Shanghai and Shenzhen Stock Exchange in 2006 and