The determinants of capital structure: evidence from Chinese listed companies

Chen, Jian and Strange, Roger (2005) The determinants of capital structure: evidence from Chinese listed companies. Economic Change and Restructuring, 38. pp. 11-35. ISSN 1573-9414

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Abstract

This paper attempts to investigate the determinants of the capital structure of a sample of 972 listed companies on the Shanghai Stock Exchange and Shenzhen Stock Exchange in China in 2003. Various theories, namely, the trade-off, pecking order and agency theories, are deployed to explain and predict the signs and significance of each factor identified by Ragan and Zingales (1995) and Booth et al. (2001). Furthermore, we include institutional shareholdings, including state agency shareholdings, state-owned shareholdings and privately owned shareholdings, as corporate governance variables to examine the effects of corporate structure on the debt financing behaviours. As well documented, we find that profitability is negatively related to capital structure at a highly significant level. The size and risk of the firms are positively related to the debt ratio ¿ but only in term of market value measures of capital structure. The years of the companies being listed on stock markets are positively related to capital structure, indicating the access of the firms to debt finance is more easily judged by book value. Tax is not a factor in influencing debt ratio. Ownership structure has a negative effect on the capital structure. The firms with higher institutional shareholdings tend to avoid using debt financing, a behaviour that can be explained by entrenchment effects. A further classification of the institutional shareholders reveals that, among the three groups of institutional shareholding, the state institutions, including state agency and state-owned institutions, were more averse to debt financing, particularly for state-owned institutions. There is no strong evidence indicating debt-averse behaviour by domestic institutional shareholders.

Item Type: Article
Schools and Departments: School of Business, Management and Economics > Business and Management
Depositing User: Roger Strange
Date Deposited: 06 Feb 2012 20:33
Last Modified: 23 Mar 2012 14:56
URI: http://sro.sussex.ac.uk/id/eprint/26537
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