Do Chinese Publicly Listed Companies Adjust their Capital Structure Toward a Target Level?

China Economic Review 20 (2009) 662–676.

Posted: 21 Feb 2007 Last revised: 1 Apr 2013

See all articles by Yanmin Qian

Yanmin Qian

Zhejiang University

Yao Tian

Independent

Tony S. Wirjanto

University of Waterloo - School of Accounting and Finance; University of Waterloo, Department of Statistics & Actuarial Science

Date Written: 2009

Abstract

We study the determinants of capital structure for 650 Chinese publicly listed companies over the period from1999 to 2004.We posit that a firm's decision on capital structure is inherently dynamic, and estimate the resulting dynamic capital structure model. The main findings of the paper are as follows: (i) Chinese firms adjust toward an equilibrium level of debt ratio in a given year at a very slow rate; (ii) firm size, tangibility and state shareholdings are positively associated with firm's leverage ratio,while profitability, non-debt tax shields, growth and volatility are negatively related to firm's leverage ratio; (iii) lagged profitability has a negligibly small and positive impact on firm's leverage ratio; (iv) for a firm experiencing a large reduction in its leverage ratio only about 11% of the discrepancy between its desiredand actual leverage level is eliminatedwithina year (compared to more than 18% for full firm sample); (v) extending the basic model to allow for both the target level and the speed of adjustment to be endogenously determined,we find that Chinese firms tend to adjust faster if theyare fartheraway fromthe equilibriumleverage level; andlastly (vi) extending the sample period to cover the earlier periods starting from1993,when the Chinese stockmarkets were first developed, results in a slower speed of adjustment for firms in the below target sample.

Keywords: Capital structure, Chinese companies, Institutional structure, Trade off theory, Pecking order theory, Dynamic panel-data regression, Dynamic panel-data GMM

JEL Classification: G32

Suggested Citation

Qian, Yanmin and Tian, Yao and Wirjanto, Tony S., Do Chinese Publicly Listed Companies Adjust their Capital Structure Toward a Target Level? (2009). China Economic Review 20 (2009) 662–676., Available at SSRN: https://ssrn.com/abstract=964259 or http://dx.doi.org/10.2139/ssrn.964259

Yanmin Qian

Zhejiang University ( email )

38 Zheda Road
Hangzhou, Zhejiang 310058
China

Tony S. Wirjanto

University of Waterloo - School of Accounting and Finance ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x35210 (Phone)

HOME PAGE: http://https://uwaterloo.ca/statistics-and-actuarial-science/people-profiles/tony-wirjanto

University of Waterloo, Department of Statistics & Actuarial Science ( email )

200 University Avenue West
Waterloo, Ontario N2L 3G1
Canada
519-888-4567 x35210 (Phone)
519-746-1875 (Fax)

HOME PAGE: http://math.uwaterloo.ca/statistics-and-actuarial-science/people-profiles/tony-wirjanto

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
3,368
PlumX Metrics