Dynamic Adjustment of Capital Structure in Macroeconomic Fluctuations

Although aboundant evidence shows that macroeconomic conditions present great impact on corporate financial decisions, little study has been carried out on the dynamic adjustment speed of capital structure and its influential factors under economic fluctuations. This paper aims to analyze the dynamic adjustment of capital structure in macroeconomic volatility. With the panel data of the Listed companies both in Shanghai and Shenzhen Stock Exchange from the years 1999 to 2008 as samples, the impact on corporate capital structure adjustment of such macroeconomic indicators as GDP growth rate, inflation rate, short-term interest rate, long-term interest rate, and capitalization degree of the stock market was investigated by the two-stage partial adjustment model. The empirical results indicate that all these economic indicators have significant influence on capital structure adjustment, among which GDP growth rate, inflation rate, and short-term interest rate are positively related to capital structure, while long-term interest rate and stock market capitalization degree are notably and negatively correlated with capital structure.