We employ a unique data set to explore the role of ownership structure and institutional development in debt financing of non-publicly traded Chinese firms. We show that state ownership is positively associated with leverage and firms’ access to long-term debt, while foreign ownership is negatively associated with all measures of leverage. Surprisingly, firms in better developed regions are associated with reduced access to long-term debt, suggesting the availability of alternative financing channels and the tightening of the lending standards under the on-going banking reform. The combination of ownership structures and institutions explains up to 6% of the total variation in firms’ leverage decisions, while firm characteristics alone explain no more than 8% of the variation. Further, we show that non-state-owned firms tend to have lower total and short-term debt than their state-owned counterparts in less developed regions. Finally, we show that state-owned firms’ easy access to long-term debt is positively associated with long-term investment and negatively associated with firm performance.
Foreign ownership, Leverage, Long-term debt, Marketization, Short-term debt, State ownership
Accounting | Marketing
Accounting Information System
Journal of Comparative Economics
LI, Kai; YUE, Heng; and ZHAO, Longkai.
Ownership, institutions, and capital structure: Evidence from China. (2009). Journal of Comparative Economics. 37, (3), 471-490. Research Collection School Of Accountancy.
Available at: http://ink.library.smu.edu.sg/soa_research/1698
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