The Choice of Capital Structure, the Scale of Financing and Debt Refunding

Differing from previous ones on the change of debt ratio, this study focuses on the choices between debt and equity financing with an attempt to integrate the change of debt ratio by using Tobit model to form a target capital structure and then explores whether firms have optimal capital structure and find out which factors affect the choice of financing using logistic regression. In addition, previous studies usually treat the scale of issuing financial instruments as exogenous variables, while this study explores whether the factors affecting financing option change the scale of outside financing and debt refunding. The empirical findings for the choice of financing indicate that 1. firms, being high-tech or not, may have target capital structure and move toward the target when they are away from it in Taiwan; 2. firms with high profitability or growth rate or with good performance in stock returns tend to select issuing equity; 3. when issuing equity may dilute corporate earnings or stock face value, firms may avoid using equity financing; 4. non-debt tax shield and the pressure from using short-term debt do not affect management in selection between debt and equity financing. The findings for the scale of financing and debt refunding indicate that 1. target capital structure not only affects the choice of financing method but also influences the scale of financing and debt refunding; 2. the higher the growth of the firm, the more its equity or convertible bond financing goes; 3. the better the performance of the stock returns, the more the equity financing the firm takes; 4. firms with high growth rate or with good performance in stock returns or with more pressure from using short-term debt tend to have larger scale of debt refunding Keywords: Capital Structure, Financing, Equity, Debt Refunding