資本結(jié)構(gòu)(Capital-Structure)課件

1、Capital Structure資本結(jié)構(gòu) 2022/7/1812Capital StructureBrief contents :Definition of Capital StructureDriving Forces for Capital StructureReview of Capital Structure TheoriesOptimal Capital Structure DecisionsEffects of Capital Structure 2022/7/182Definition of Capital StructureConcept of Capital Structu

2、reFeatures of Modern Firms Capital Structure2022/7/183Concept of Capital StructureBroad SenseProportion of equity capital to debt capitalNarrow SenseProportion of equity capital to long-term debtShort-term debt as working capital2022/7/184Features of Modern FirmsCapital StructureCapital structure is

3、 a evolving system affected by many factorsCapital structure integrates capital with different compo-nents,ownerships,time span and levels2022/7/185Capital structure is a relative independent system with quality and quantity integratedEach capital component,cost and risk should harmonizeEach capital

4、 component should maintain rational and balanced proportion2022/7/186Capital structure is a dynimic systemOptimal capital structure is relative, it should harmonize in motion, optimally choose in variation2022/7/187Driving Forces for Capital StructureModern Firms Equity Rights RelationshipsDriving b

5、y Financial LeverageRestrictions of Financial Risky InterestsOther Influencial Factors2022/7/188Modern Firms Equity Rights RelationshipEquity rights and their relationships are the basis of capital structure formationEquity rights are structural arrangement of relative rights based on property right

6、s.Corporate financial management is the important instruments to safeguard specific equity relationship Capital structure is financial form of corporate equity rights relationship2022/7/189Driving by Financial LeverageWhen arranging capital structure, financial leverage interests are the most direct

7、 driving force of using debt.As long as expected rate of return is higher than interests of debt,return on equity(ROE) will be increased by using debt.Interests cost dan shield tax,pre-tax debt costs are lower than pre-tax equity costs.2022/7/1810Restrictions by Financial RiskFinancial risk is the u

8、ncertainty of financing activities,including incapably paying off due principals and interests,variation of ROE will be caused by using financial leverage.Firms should consider following factors when making capital structure risky decisions:Debt ratio and debts structureCash flow and assets structur

9、eGrowth of sales and profitabilityDifficulty of equity capital financing2022/7/1811Other Influencial FactorsDifferences of industry competition and asset structure make different requirements to capital constituteTax rate and market interest level have active leading functions to firms capital struc

10、tureFirms capital structure will be limited by firms profitabilityExpectations and confidence from stakeholders will exercise a great influence on firms capital structure2022/7/1812Review of Capital Structure TheoriesNet Income TheoryNet Operating Income TheoryTraditional TheoryMM TheoryTax Shield T

11、heoryAgency TheoryTrade-off TheorySignal Hypothesis TheoryPecking Order Theory 2022/7/1813Net Income TheoryRepresnetative FigureDavid DunandBasic ViewpointsCost of debt is lower than cost of equity,Debt can decrease firms WACCThe higher debt,the larger corporate value100 percent debt can maximize co

12、rporate value 2022/7/1814Net Operating Income TheoryRepresentative FigureDavid DunandBasic ViewpointsFirmss WACC is permanent,has nothing to do with capital structureWhen using financial leverage,cost of debt does not change, increase of risk makes cost of equity higher than before, WACC keeps uncha

13、nged,corporate value is also constantCorporate value is determined by future EBIT.EBIT has nothing to do with capital structure.Firms have no optimal capital structure2022/7/1815Traditional TheoryRepresentative FigureDavid DunandBasic ViewpointsWith moderate degree of debts,ascent of cost of equity

14、can not completely offset gain from leverage,WACC will decrease,corporate value will riseWhen exceeding specific degree, the increase of equity cost can not offset lower cost of debt,WACC will increaseOptimal capital structure is at the point when WACC change from decrease to increase2022/7/1816MM T

15、heoryRepresentative FiguresModigliani andMillerThree famous papers were published in 1958,1963 and 1976Modigliani won Nobel Prize in economics in 1958Miller won Nobel Prize in economics in 19902022/7/1817Basic Assumptions under MM without taxesPerfect capital market：There are no transaction costPerf

16、ect information：All participants(investors) can obtain material and timely information without no costs Firms risk classfication：Business risk measures a firms risk,debt is riskless,both individuals and institutions can borrow at the same rate as corporationsEBIT zero growth：Profitability of firms w

17、ith same risk is identical.All cash flows are perpetuities.All firms have an “expectationally constant”EBITNo income taxes：There are no personal or corporate income taxes2022/7/1818MM Theory: Zero Taxes Propostion 1：A firms value is unaffected by its financing mix,but depends on a constant rate whic

18、h is based on the firms risk class Propositon 2：The cost of equity to a levered firm is equal to the cost of equity to an levered firm in the same risk class,plus a risk premium whose size depends on both the defferential between an unlevered firms cost of debt and equity and the Debt/Equity ratioPr

19、oposition 3：Whatever circumstance,rate of return on investments regards cost of capital as lowest rate of return,unaffected by its capital structure2022/7/1819Consider：How will systematical risk vary？What is the relation between systematical risk and equity value of a levered firms?2022/7/1820MM Wit

20、h Corporate TaxesThe value of a levered firm is equal to the value of an unlevered firm in the same risk class plus the gain from leverage When corporate taxes are introduced, more debts, more tax saving, and larger the corporate valueA firms value is maximized at 100 percent debt financing2022/7/18

21、21The cost of equity to a leveres firm is equal to the cost of equity to an unlevered firm in the same risk class, plus a risk premium whose size depends on the differential between the cost of equity and debt to an unlevered firm, the amount of financial leverage used,and the corporate tax rate:202

22、2/7/1822Significance of MM TheoryAssumptions of MM had marked disparity with reality.Just due to these assumptions picked many factors in realization,MM theory could quantitatively reveal the most fundamental problem of capital structure whose relation with corporate value.This is the essence of MM

23、theory.Many capital structure theories developed on the basis of MM theory.Without MM theory,various kinds of capital structure theories following may not exist.MM theory has an important role,making great contribution to modern financial management theories development.2022/7/1823Problems of MM The

24、oryNo perfect capital market hinders arbitrageBrokerage costs can not be neglectedIndividual debt and corporate debt can not perfectly replace each otherThere are financial distress and agency costsTax saving of debt will depend on operating conditions.2022/7/1824Tax Shield Surplus TheoryFounderDean

25、glu and MasulisBasic ViewpointsExcept debt interests,lease and investment tax reduction can also shield taxes.But if a firms net income is too low in some year,tax savings will be excessive.So the more uncertain tax shield,the less attract debt financing Appropriate Debt2022/7/1825Agency TheoryFound

26、erJensen and MecklingBasic ViewpointsDebt financing can decrease stockholders agency costsDebt financing can increase debtholders agency costsOptimal capital structure depends on the balance of agency cost of stockholders and debtholders2022/7/1826Trade-off TheoryIntroduce both financial distress co

27、sts and agency costs into modelWhen tax benefits of debt equal to the sum of financial distress and agency costs, corporate value is maximized,it is the optimal strtuctureEvery firm should adapt a kind of capital structure which balance interests and costs,maximizing corporate value2022/7/1827Valuat

28、ion model including financial distress and agency costs: But it is difficult to quantify financial distress costs and agency costs, this model is difficult to be applied2022/7/1828Cost of Capital (%)14 4Debt ($)ksWACCkd(1 - T)D*Relationships between capital costs and leverage with financial distress

29、 and agency costs2022/7/1829Value of Firm ($)Debt ($)4321Note that value is maximized and WACC is minimized at the same capital structure.D*Relationship between value and leverage.2022/7/1830According to trade-off modle,each firm has a optimal capital structure, but is should judge and choose as fol

30、lows:With other conditions identical,firms with lower business risk can use more debtFirms with more tangible assets can use more debts than those with more intangible assetsThe higher the firms marginal tax rate, the more tax benefits from debt2022/7/1831Signal HypothesisManagers can transmit infor

31、mation to capital market or stockholders by changing capital structure,reflecting managers expectation of corporate risk and future operations variationsRoss(1977)：Managers using more debt,represents their objective expectation for futureMyers and Majluf (1984)：If a firm exects its operating conditi

32、on better than before,the best choice is using retained earnings,then debt,the last choice is issuing new stock.Market will interpret using retained earnings and debt financing as objective exepctation by this firm,stock price will rise.Therefore,adapting financial programme which does not dilute st

33、ockholders control rights,will maximize stockholders wealth2022/7/1832Pecking Order TheoryFoundersMyers and MajlufBasic ViewpoinstDebts have dual effectsTax savingsMore debt,larger corporate valuePV of financial distress and agency costsMore debt,less corporate valueWith smaller debt ratio,the first

34、 effect is big.With larger debt ratio,the second effect is small Appropriate debtIn perfect capital market,there is a specific financing order:Internal fundsExternal funds（New debtsNew common stocks）2022/7/1833Optimal Capital Structure DecisionsCost of Capital Comparison MethodEPS Analysis MethodCas

35、h Flow Analysis MethodTrade-off MethodEVA Method2022/7/1834Cost of Capital Comparison MethosChoice Criterion:Cost of capital maximizationDecision procedureCalculate WACC of each financing planJudge the feasibility of each planChoose optimal financing plan by comparison2022/7/1835EPS Analysis MethodD

36、ecision CriterionChoose optimal financing plan according to EPS during financing decisionsFrom the viewpoints of economic consequence, EPS analysis is easier to be accepted than cost comparison methodBoth cost comparison method and EPS analysis method,do not consider the market effects and risk fact

37、ors of financing plan,the defect is significant2022/7/1836Cash Flow Analysis MethodIf a firm has adequate and stable cash flows exepcted, the firm can appropriately increase its debt ratioIf expected cash flows are not adequate and fluctuate, the firm should control debt financing,decreasing firms f

38、inancial riskAccording to pessimistis cash budget,the firm should ensure its liquidity and control its debt scale2022/7/1837Trade-off MethodUnder optimal capital structure,corporate value is maximized with lowest WACC Increase of debt can bring tax benefits,but financial distress and agency costs wi

39、ll also increase,so the firm should trade off cost and returnWhen tax saving benefits larger than the sum of financial distress and agency costs,the firm can use more debtsWhen tax saving benefits smaller than the sum of financial distress and agency costs,debt scale of the firm is excessiveWhen tax

40、 saving benefits equal to the sum of financial distress and agency costs,the firm has the optimal capital structure2022/7/1838EVA MethodShould listed companies in our country choose equity financing or debt financing?Because of the equity capitals nonrepayment and dividends uncertainty,our listed co

41、mpanies always neglect opportunity costs of equity capitalEVA ration strengthens the concept of cost of capital,only after deducting both cost of debt and cost of equity,the earnings can create wealth for the firm.Firms should choose the capital structure which makes corporate value maximization bas

42、ed on EVA method2022/7/1839EVA =Net Operating profit after taxes,or NOPATAfter-tax dollar cost of capital used to support operations =EBIT(1corporate tax rate)(Operating capital)(WACC) 2022/7/1840EVA-based corporate valuation formula： is the corporate value.From the viewpoint of financing body,WACC

43、is the weighted average cost of capital of one financing plan.From the viewpoint of investors,WACC is their required rate of return,it relates to opportunity cost of capital.Meanwhile,WACC should consider business risk and financial risk of the firm.2022/7/1841Effect of Capital StructureLeverage Eff

44、ects of Capital StructureGovernance Effects of Capital Structure2022/7/1842Leverage Effect of Capital StructureFinancial leverage effect of capital structure means that ROE can be affected by choice of debt ratio.Formula as follows：ROE=ROA+(ROAI)(D/E)(1T)2022/7/1843Positive leverage effect: When ROA

45、 is larger than I,more debt can lead to the increase of ROENegative leverage effect: When ROA is smaller than I, more debt can lead to the decrease of ROEPossible negative leverage effect: WhenROA equals I, debt can not affect ROE2022/7/1844Governance Effect of Capital StructureCapital structure is

46、the basis of corporate governanceCapital structure is a binding and balancing mechanisms disposition with equity main body depending and affecting each other.Choice of defferent financing contracts is just the choice of different governing mechanism.Financing decision is to determine the optimal capital structure, then forms effect binding and balancing mechanism to restrain agentsGovernance