The Research of How Free Cash Flow Affects Capital Structure Dynamic Adjustment
|School||Xinjiang University of Finance and Economics|
|Keywords||cash flow leverage target capital structure dynamic adjustment|
According to the dynamic theory of capital structure, the existence of optimalcapital structure, owing to the changes in the internal and external environment, theoptimal capital structure will continue to change, and only partially to the target value.Capital structure adjustment cannot be immediately adjusted to the optimal value,adjusting to the target capital structure is a dynamic process. In addition, the presence ofadjustment costs will affect the target capital structure adjustment, adjust the number ofdecision-making, resulting in actual capital structure often deviate from the target capitalstructure. This corporate cash flow portrayed adjustment costs, to look at different cashflow position the capital structure adjustment speed whether there are significantlydifference.This article uses the sample data from the2001-2010data released by the ShanghaiA-share listed companies of non-financial sectors, to build dynamically adjust the effectof the partial adjustment model of cash flow to the capital structure. Affect therecapitalization of the empirical analysis found the target capital structure will continueto change, and actual capital structures tend to be inconsistent with the target value, to alarge extent by the impact of the adjustment costs in the process of adjustment to thetarget value. Adjustment cost is a complex and abstract concept and difficult to directlyobserve it more difficult for accurate quantitative analysis, we only have to find can bequantified and then examine the impact of capital structure adjustment speed.Free cash flow the overall sample are grouped into positive cash flow group andnegative cash flow group, in addition to the cash flow gap compared to the degree ofdeviation of the capital structure, divided into a group of high cash flow and low cashflow group, this to characterize the different adjustment costs, and then through a partialadjustment model to estimate the cash flow position of the speed of the averageadjustment to the target capital structure. The empirical results show that the capitalstructure adjustment in free cash flow under the influence of the direction of the cashflow needs and capital structure dynamically adjust the speed of a negative correlation,which has a positive cash flow businesses are slow to adjust the speed to the targetcapital structure, which has a negative cash The flow of corporate capital structuredynamically adjust the speed. In free cash flow dynamically adjust the capital structure of the process, and the degree of deviation of the target capital structure, cash flow fundinggap larger the enterprise the faster the speed of adjustment to the target capital structure;cash flow funding gap smaller the enterprise the slower the speed of adjustment to thetarget capital structure. Finally, we use the market value of leverage instead of bookleverage as the dependent variable substituted into the partial adjustment model made arobustness test, the results showed that the regression results of the robustness test withassumptions consistent free cash flow effect of capital structure adjustment speed is alsothe same.This paper attempts to analysis the dynamical adjustment in the cash flow andcapital structure interaction attempt, although they can not quantify the adjustment costs,but to some extent, enrich and improve the cash flow on the dynamic adjustment ofcapital structure.