Determinants of Capital Structure: Evidence from China Public Listed Industrial Companies

• Main Author: Cao, Le
• Format: Thesis
• Language: English; English
• Published: 2011
• Subjects: HG Finance
• Online Access: https://etd.uum.edu.my/3254/1/CAO_LE.pdf; https://etd.uum.edu.my/3254/2/1.CAO_LE.pdf; https://etd.uum.edu.my/3254/
• Institution: Universiti Utara Malaysia

This paper examines determinants of capital structure of China-Listed companies in Shang Hai Stock Exchange. Profitability, size, growth rate and liquidity are the variables used as the independent variables, while capital structure is proxied by leverage.The capital market of China went through a remarkable growth from 2006 to 2008, but currently it is in deep recession. This study looks at the factors that influence China's industrial companies' capital structure in a ten-year period, from 1998 to 2010. The findings show that size is positively and significantly correlated to leverage, whilst liquidity is negatively but significantly influences leverage. Both profitability and growth rates do not have any effect on capital structure of the 967 industrial companies examined. The findings also demonstrate that neither the pecking order theory nor trade-off theory derived from the western setting could provide convincing explanation for the capital structure choices of the China's companies. The differences in the choices may be attributed to the fundamental institutional assumptions in the western models that are not valid in China.