Optimization of capital structure in real estate enterprises

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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

Abstract
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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 and 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), 797-837. doi: 10.1093/rfs/hhr103.
[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), 1443-1493. doi: 10.3386/w6145.
[3]	E. Barucci and L. Del Viva, Dynamic capital structure and the contingent capital option, Annals of Finance, 9 (2013), 337-364. doi: 10.1007/s10436-012-0188-z.
[4]	F. Black and M. Scholes, The pricing of options and corporate liabilities, The journal of political economy, 81 (1973), 637-654. doi: 10.1086/260062.
[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), 343-378. doi: 10.1111/j.1467-9965.2009.00375.x.
[6]	Y. Chu, Optimal capital structure, bargaining, and the supplier market structure, Journal of Financial Economics, 106 (2012), 411-426. doi: 10.1016/j.jfineco.2012.05.010.
[7]	D. O. Cook and T. Tang, Macroeconomic conditions and capital structure adjustment speed, Journal of Corporate Finance, 16 (2010), 73-87. doi: 10.1016/j.jcorpfin.2009.02.003.
[8]	M. J. Flannery and K. P. Rangan, Partial adjustment toward target capital structures, Journal of Financial Economics, 79 (2006), 469-506. doi: 10.1016/j.jfineco.2005.03.004.
[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), 27-38. doi: 10.2307/2331022.
[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), 67-71. (in Chinese)
[11]	D. C. Mauer and S. Sarkar, Real options, agency conflicts, and optimal capital structure, Journal of Banking & Finance, 29 (2005), 1405-1428. doi: 10.1016/j.jbankfin.2004.05.036.
[12]	E. Morellec, B. Nikolov and N. Schürhoff, Corporate governance and capital structure dynamics, The Journal of Finance, 67 (2012), 803-848. doi: 10.2139/ssrn.1106164.
[13]	Ö. Öztekin and M. J. Flannery, Institutional determinants of capital structure adjustment speeds, Journal of Financial Economics, 103 (2012), 88-112.
[14]	A. A. Robichek and S. C. Myers, Problems in the theory of optimal capital structure, Journal of Financial and Quantitative Analysis, 1 (1966), 1-35. doi: 10.2307/2329989.
[15]	B. Yang, Dynamic capital structure with heterogeneous beliefs and market timing, Journal of Corporate Finance, 22 (2013), 254-277. doi: 10.2139/ssrn.1732870.
[16]	Z. Zhang, The value of debt guarantee, Research on financial and economic issues, 187 (1999), 22-27. (in Chinese)
[17]	Z. Zhang and S. Xiao, Tax shield, bankruptcy cost and the optimal capital structure, Accounting Research, (2009), 47-55. (in Chinese)

show all references

References:

[1]	R. Anderson and A. Carverhill, Corporate liquidity and capital structure, Review of financial studies, 25 (2012), 797-837. doi: 10.1093/rfs/hhr103.
[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), 1443-1493. doi: 10.3386/w6145.
[3]	E. Barucci and L. Del Viva, Dynamic capital structure and the contingent capital option, Annals of Finance, 9 (2013), 337-364. doi: 10.1007/s10436-012-0188-z.
[4]	F. Black and M. Scholes, The pricing of options and corporate liabilities, The journal of political economy, 81 (1973), 637-654. doi: 10.1086/260062.
[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), 343-378. doi: 10.1111/j.1467-9965.2009.00375.x.
[6]	Y. Chu, Optimal capital structure, bargaining, and the supplier market structure, Journal of Financial Economics, 106 (2012), 411-426. doi: 10.1016/j.jfineco.2012.05.010.
[7]	D. O. Cook and T. Tang, Macroeconomic conditions and capital structure adjustment speed, Journal of Corporate Finance, 16 (2010), 73-87. doi: 10.1016/j.jcorpfin.2009.02.003.
[8]	M. J. Flannery and K. P. Rangan, Partial adjustment toward target capital structures, Journal of Financial Economics, 79 (2006), 469-506. doi: 10.1016/j.jfineco.2005.03.004.
[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), 27-38. doi: 10.2307/2331022.
[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), 67-71. (in Chinese)
[11]	D. C. Mauer and S. Sarkar, Real options, agency conflicts, and optimal capital structure, Journal of Banking & Finance, 29 (2005), 1405-1428. doi: 10.1016/j.jbankfin.2004.05.036.
[12]	E. Morellec, B. Nikolov and N. Schürhoff, Corporate governance and capital structure dynamics, The Journal of Finance, 67 (2012), 803-848. doi: 10.2139/ssrn.1106164.
[13]	Ö. Öztekin and M. J. Flannery, Institutional determinants of capital structure adjustment speeds, Journal of Financial Economics, 103 (2012), 88-112.
[14]	A. A. Robichek and S. C. Myers, Problems in the theory of optimal capital structure, Journal of Financial and Quantitative Analysis, 1 (1966), 1-35. doi: 10.2307/2329989.
[15]	B. Yang, Dynamic capital structure with heterogeneous beliefs and market timing, Journal of Corporate Finance, 22 (2013), 254-277. doi: 10.2139/ssrn.1732870.
[16]	Z. Zhang, The value of debt guarantee, Research on financial and economic issues, 187 (1999), 22-27. (in Chinese)
[17]	Z. Zhang and S. Xiao, Tax shield, bankruptcy cost and the optimal capital structure, Accounting Research, (2009), 47-55. (in Chinese)

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