The Two Faces of Debt or the Two Faces of Dividends? Growth Opportunities and Firm Value in China

1 Pages Posted: 15 Feb 2015

See all articles by José López-Gracia

José López-Gracia

University of Valencia - Department of Accounting

Félix J. López-Iturriaga

University of Valladolid - Department of Financial Economics and Accounting; National Research University Higher School of Economics - International Laboratory of Intangible-driven Economy

Juan Antonio Rodríguez-Sanz

University of Valladolid - Department of Economics and Business Administration

Date Written: February 14, 2015

Abstract

We analyse how the firms’ capital structure and the corporate dividend policy affect the market value of the Chinese listed firms conditional upon the availability of growth opportunities between 2004 and 2013. Our results partially lend support to the predictions of the financial theory, and partially call for new explanations. We find that, as expected, dividends play a dual role: while they are positively related to the value of the firms with low growth opportunities, they have a negative effect on the value of the firms with high growth opportunities. Interestingly, the capital structure has a positive impact on the value of the firms whatever their growth opportunities are. This result can be explained by the tightening financial constraints existing in Chinese capital markets.

Keywords: Capital structure, China, corporate finance, dividends, growth opportunities.

JEL Classification: G32, G35

Suggested Citation

Lopez-Gracia, Jose and Lopez-Iturriaga, Felix Javier and Rodríguez-Sanz, Juan Antonio, The Two Faces of Debt or the Two Faces of Dividends? Growth Opportunities and Firm Value in China (February 14, 2015). Available at SSRN: https://ssrn.com/abstract=2564921

Jose Lopez-Gracia

University of Valencia - Department of Accounting ( email )

Campus de Tarongers
Valencia
Spain
34 963 82 83 06 (Phone)
34 963 82 82 87 (Fax)

Felix Javier Lopez-Iturriaga (Contact Author)

University of Valladolid - Department of Financial Economics and Accounting ( email )

Avda. Valle Esgueva 6
47011 Valladolid
Spain
+34 983 184 395 (Phone)
+34 983 183830 (Fax)

HOME PAGE: http://www2.eco.uva.es/flopez

National Research University Higher School of Economics - International Laboratory of Intangible-driven Economy ( email )

Lebedeva,27
Perm, Perm 614070
Russia

Juan Antonio Rodríguez-Sanz

University of Valladolid - Department of Economics and Business Administration ( email )

Avda. Valle Esgueva 6
47011 Valladolid
Spain
+34-983-423000 Ext. 24395 (Phone)
+34-983-423333 (Fax)

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