Leverage and Capital Structure Determinants of Chinese Listed Companies
33 Pages Posted: 12 Jun 2017
Date Written: January 2017
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: Suggested Citation