Leverage and Capital Structure Determinants of Chinese Listed Companies

33 Pages Posted: 12 Jun 2017

See all articles by Benno Ferrarini

Benno Ferrarini

Asian Development Bank

Marthe Hinojales

Asian Development Bank

Pasquale Scaramozzino

University of Rome II - Faculty of Economics; University of London - School of Oriental and African Studies (SOAS); University of London - Centre for Financial and Management Studies (CeFIMS)

Date Written: January 2017

Abstract

Total debt in the People’s Republic of China has increased significantly in recent years, mostly on account of nonfinancial corporate debt. Earning and the financial performance of corporate firms have weakened, and so has the asset quality of the financial sector. This paper assesses the financial fragility of the Chinese economy by looking at risk factors in the nonfinancial sector. We apply quantile regressions to a rich dataset of Chinese listed companies contained in Standard & Poor’s IQ Capital database. We find higher sensitivity over time of corporate leverage to some of its key determinants, particularly for firms at the upper margin of the distribution. In particular, profitability increasingly acts as a curb on corporate leverage. At a time of falling profitability across the Chinese nonfinancial corporate sector, this eases the brake on leverage and may contribute to its continuing increase.

Keywords: corporate debt, debt sustainability, panel quantile regression, People’s Republic of China

JEL Classification: G01, G21, H30, H60

Suggested Citation

Ferrarini, Benno and Hinojales, Marthe and Scaramozzino, Pasquale, Leverage and Capital Structure Determinants of Chinese Listed Companies (January 2017). Asian Development Bank Economics Working Paper Series No. 509. Available at SSRN: https://ssrn.com/abstract=2982751 or http://dx.doi.org/10.2139/ssrn.2982751

Benno Ferrarini (Contact Author)

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Marthe Hinojales

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Pasquale Scaramozzino

University of Rome II - Faculty of Economics ( email )

Via Columbia n.2
Rome, 00100
Italy

University of London - School of Oriental and African Studies (SOAS) ( email )

Thornhaugh Street
Russell Square: College Buildings 541
London, WC1H 0XG
United Kingdom

University of London - Centre for Financial and Management Studies (CeFIMS)

Thornhaugh Street
London, WC1H 0XG
United Kingdom

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