Research on the Impact of Capital Structure on Enterprise Value

College of Economics and Management, Fujian Agriculture and Forestry University, Fuzhou, China

^* Corresponding author: 202422070090@mail.bnu.edu.cn

Abstract

Capital structure refers to the proportional relationship between various long-term funding sources of an enterprise. A reasonable capital structure that can meet the funding needs of the enterprise while balancing risks and benefits, maximizing the value of the enterprise. However, due to the differences in the industrial environment, market environment and their own business conditions where enterprises are located, it is difficult to determine the optimal capital structure. This article selects Chinese A-share listed companies from 2014 to 2023 as the research object. By collecting annual report information and using a fixed effects model for empirical testing, it is found that there is an inverted U-shaped relationship between capital structure and enterprise value. A reasonable capital structure can provide a stable source of capital for enterprises, reduce financial risks, enhance investment flexibility and autonomy, thereby maximizing the value of the enterprise. On the contrary, if a company’s capital structure is unreasonable, the debt ratio is too high, debt pressure is high, and the financial risks are high, its investment decisions will be subject to many constraints, which will hurt the company’s value.