American Institute of Mathematical Sciences

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July  2015, 11(3): 969-983. doi: 10.3934/jimo.2015.11.969

Optimization of capital structure in real estate enterprises

Hong Zhang 1, and  Fei Yang 1,

1. 

Institute of Real Estate Research, Tsinghua University, Beijing, 100084, China, China

Received  November 2013 Revised  June 2014 Published  October 2014

On the basis of capital structure theory and the option pricing model, the revenues and costs of debts are quantified. Combining with the financing characteristics of real estate enterprises, a mathematical model in consideration of the effect of interest-free debt was established in this paper to determine the optimal capital structure of real estate enterprises, and then a simulation analysis was conducted. The results indicated that the interest-bearing debt interest rate, the tax rate, the risk-free interest rate and the proportion of interest-bearing debt are all positively correlated with the optimal debt ratio of real estate enterprises, the annual average growth rate of housing price and the annual volatility of enterprise assets are negatively correlated with that, and as the debt maturity increases, the optimal debt ratio of real estate enterprises will decrease.
Keywords: capital structure, real estate enterprises, interest-free debt, Optimization, interest-bearing debt, simulation analysis..
Mathematics Subject Classification: 91G5.
Citation: Hong Zhang, Fei Yang. Optimization of capital structure in real estate enterprises. Journal of Industrial & Management Optimization, 2015, 11 (3) : 969-983. doi: 10.3934/jimo.2015.11.969
References:
[1]

R. Anderson and A. Carverhill, Corporate liquidity and capital structure,, Review of financial studies, 25 (2012), 797.  doi: 10.1093/rfs/hhr103.  Google Scholar

[2]

G. Andrade and S. N. Kaplan, How costly is financial (not economic) distress? Evidence from highly leveraged transactions that became distressed,, The Journal of Finance, 53 (1998), 1443.  doi: 10.3386/w6145.  Google Scholar

[3]

E. Barucci and L. Del Viva, Dynamic capital structure and the contingent capital option,, Annals of Finance, 9 (2013), 337.  doi: 10.1007/s10436-012-0188-z.  Google Scholar

[4]

F. Black and M. Scholes, The pricing of options and corporate liabilities,, The journal of political economy, 81 (1973), 637.  doi: 10.1086/260062.  Google Scholar

[5]

N. Chen and S. G. Kou, Credit spreads, optimal capital structure, and implied volatility with endogenous default and jump risk,, Mathematical Finance, 19 (2009), 343.  doi: 10.1111/j.1467-9965.2009.00375.x.  Google Scholar

[6]

Y. Chu, Optimal capital structure, bargaining, and the supplier market structure,, Journal of Financial Economics, 106 (2012), 411.  doi: 10.1016/j.jfineco.2012.05.010.  Google Scholar

[7]

D. O. Cook and T. Tang, Macroeconomic conditions and capital structure adjustment speed,, Journal of Corporate Finance, 16 (2010), 73.  doi: 10.1016/j.jcorpfin.2009.02.003.  Google Scholar

[8]

M. J. Flannery and K. P. Rangan, Partial adjustment toward target capital structures,, Journal of Financial Economics, 79 (2006), 469.  doi: 10.1016/j.jfineco.2005.03.004.  Google Scholar

[9]

R. A. Haugen, and L. W. Senbet, Bankruptcy and agency costs: Their significance to the theory of optimal capital structure,, Journal of Financial and Quantitative Analysis, 23 (1988), 27.  doi: 10.2307/2331022.  Google Scholar

[10]

W. Jin, W. Zhang, B. Zhou and X. Xiong, Dynamic capital structure of the real estate companies in China,, The theory and practice of finance and economics, 168 (2010), 67.   Google Scholar

[11]

D. C. Mauer and S. Sarkar, Real options, agency conflicts, and optimal capital structure,, Journal of Banking & Finance, 29 (2005), 1405.  doi: 10.1016/j.jbankfin.2004.05.036.  Google Scholar

[12]

E. Morellec, B. Nikolov and N. Schürhoff, Corporate governance and capital structure dynamics,, The Journal of Finance, 67 (2012), 803.  doi: 10.2139/ssrn.1106164.  Google Scholar

[13]

Ö. Öztekin and M. J. Flannery, Institutional determinants of capital structure adjustment speeds,, Journal of Financial Economics, 103 (2012), 88.   Google Scholar

[14]

A. A. Robichek and S. C. Myers, Problems in the theory of optimal capital structure,, Journal of Financial and Quantitative Analysis, 1 (1966), 1.  doi: 10.2307/2329989.  Google Scholar

[15]

B. Yang, Dynamic capital structure with heterogeneous beliefs and market timing,, Journal of Corporate Finance, 22 (2013), 254.  doi: 10.2139/ssrn.1732870.  Google Scholar

[16]

Z. Zhang, The value of debt guarantee,, Research on financial and economic issues, 187 (1999), 22.   Google Scholar

[17]

Z. Zhang and S. Xiao, Tax shield, bankruptcy cost and the optimal capital structure,, Accounting Research, (2009), 47.   Google Scholar

show all references

References:
[1]

R. Anderson and A. Carverhill, Corporate liquidity and capital structure,, Review of financial studies, 25 (2012), 797.  doi: 10.1093/rfs/hhr103.  Google Scholar

[2]

G. Andrade and S. N. Kaplan, How costly is financial (not economic) distress? Evidence from highly leveraged transactions that became distressed,, The Journal of Finance, 53 (1998), 1443.  doi: 10.3386/w6145.  Google Scholar

[3]

E. Barucci and L. Del Viva, Dynamic capital structure and the contingent capital option,, Annals of Finance, 9 (2013), 337.  doi: 10.1007/s10436-012-0188-z.  Google Scholar

[4]

F. Black and M. Scholes, The pricing of options and corporate liabilities,, The journal of political economy, 81 (1973), 637.  doi: 10.1086/260062.  Google Scholar

[5]

N. Chen and S. G. Kou, Credit spreads, optimal capital structure, and implied volatility with endogenous default and jump risk,, Mathematical Finance, 19 (2009), 343.  doi: 10.1111/j.1467-9965.2009.00375.x.  Google Scholar

[6]

Y. Chu, Optimal capital structure, bargaining, and the supplier market structure,, Journal of Financial Economics, 106 (2012), 411.  doi: 10.1016/j.jfineco.2012.05.010.  Google Scholar

[7]

D. O. Cook and T. Tang, Macroeconomic conditions and capital structure adjustment speed,, Journal of Corporate Finance, 16 (2010), 73.  doi: 10.1016/j.jcorpfin.2009.02.003.  Google Scholar

[8]

M. J. Flannery and K. P. Rangan, Partial adjustment toward target capital structures,, Journal of Financial Economics, 79 (2006), 469.  doi: 10.1016/j.jfineco.2005.03.004.  Google Scholar

[9]

R. A. Haugen, and L. W. Senbet, Bankruptcy and agency costs: Their significance to the theory of optimal capital structure,, Journal of Financial and Quantitative Analysis, 23 (1988), 27.  doi: 10.2307/2331022.  Google Scholar

[10]

W. Jin, W. Zhang, B. Zhou and X. Xiong, Dynamic capital structure of the real estate companies in China,, The theory and practice of finance and economics, 168 (2010), 67.   Google Scholar

[11]

D. C. Mauer and S. Sarkar, Real options, agency conflicts, and optimal capital structure,, Journal of Banking & Finance, 29 (2005), 1405.  doi: 10.1016/j.jbankfin.2004.05.036.  Google Scholar

[12]

E. Morellec, B. Nikolov and N. Schürhoff, Corporate governance and capital structure dynamics,, The Journal of Finance, 67 (2012), 803.  doi: 10.2139/ssrn.1106164.  Google Scholar

[13]

Ö. Öztekin and M. J. Flannery, Institutional determinants of capital structure adjustment speeds,, Journal of Financial Economics, 103 (2012), 88.   Google Scholar

[14]

A. A. Robichek and S. C. Myers, Problems in the theory of optimal capital structure,, Journal of Financial and Quantitative Analysis, 1 (1966), 1.  doi: 10.2307/2329989.  Google Scholar

[15]

B. Yang, Dynamic capital structure with heterogeneous beliefs and market timing,, Journal of Corporate Finance, 22 (2013), 254.  doi: 10.2139/ssrn.1732870.  Google Scholar

[16]

Z. Zhang, The value of debt guarantee,, Research on financial and economic issues, 187 (1999), 22.   Google Scholar

[17]

Z. Zhang and S. Xiao, Tax shield, bankruptcy cost and the optimal capital structure,, Accounting Research, (2009), 47.   Google Scholar

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