The Determinants of Capital Structure: Evidence from Chinese Listed Companies |
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Authors: | Email author" target="_blank">Jian?ChenEmail author Roger?Strange |
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Institution: | (1) Business School, the University of Greenwich, SE1 9NH London, Greenwich, UK;(2) Department of Management, King’s College London, 150 Stamford Street, SE1 9NN London |
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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. |
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Keywords: | capital structure ownership structure |
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