The Two Faces of Debt or the Two Faces of Dividends? Growth Opportunities and Firm Value in China
1 Pages Posted: 15 Feb 2015
Date Written: February 14, 2015
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
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