What are the Reliably Important Determinants of Capital Structure in China?
54 Pages Posted: 30 Jan 2014 Last revised: 26 Apr 2014
Date Written: January 29, 2014
Existing studies disagree over the basic determinants of capital structure in Chinese firms. We identify profitability, industry leverage, asset growth, tangibility, firm size, state control, and the largest shareholding as reliable core factors explaining book leverage. Compared with evidence from the United States and other countries, we identify three new core factors, and observe that the relative importance of four common core factors for Chinese firms is diverse. In particular, the state-control dummy is negatively associated with book leverage, contrary to findings in certain previous studies. Additional tests indicate that such a negative effect of state-control derives primarily from easier access to equity financing.
Keywords: Capital structure, China, Financial constraints, State ownership, Leverage
JEL Classification: G32
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