Ownership, institutions, and capital structure: Evidence from China

Author

Kai LI
Heng YUE, Singapore Management UniversityFollow
Longkai ZHAO

Publication Type

Journal Article

Publication Date

7-2009

Abstract

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.

Keywords

Foreign ownership, Leverage, Long-term debt, Marketization, Short-term debt, State ownership

Discipline

Accounting | Marketing

Research Areas

Accounting Information System

Publication

Journal of Comparative Economics

Volume

37

Issue

3

First Page

471

Last Page

490

ISSN

0147-5967

Identifier

10.1016/j.jce.2009.07.001

Publisher

Academic Press

Citation

LI, Kai; YUE, Heng; and ZHAO, Longkai. Ownership, institutions, and capital structure: Evidence from China. (2009). Journal of Comparative Economics. 37, (3), 471-490.
Available at: https://ink.library.smu.edu.sg/soa_research/1698

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.

Additional URL

http://doi.org/10.1016/j.jce.2009.07.001