Relationship between Liability and Profitability of the Listed Companies in Petrochemical Industry: An Empirical Investigation

In the development of a company, reasonable and moderate liability can not only make up capital insufficiency, but also make better use of the financial leverage and improve the income ratio of rights capital. The petrochemical industry is one of the national economy pillars. Therefore, it is very important to investigate the relationship between liability and profitability of the listed companies so as to improve their capability to collect capital, make the best of financial leverage and optimize the capital structure. According to 157 petrochemical listed companies´ annul report data from 2002 to 2004, this paper analyzes the liability condition of those listed companies and the relationship between liability and profitability by empirical investigation. The result shows: the financial performance of the petrochemical listed companies which in different liability range is obviously different; most of the companies whose liability/asset ratio below 40% generally had better financial performance, and the performance was also significantly higher than average; performance of the companies whose liability/asset ratio in 40%-60% is a little lower than the ones whose liability/asset ratio below 40%; and most of the companies in this industry generally choose the capital structure from 40% to 60%; performance of the companies whose liability/asset ratio over 60% declines significantly; the companies whose liability/asset ratio over 80% are almost suffering loss