Leverage and investment under a state-owned bank lending environment : evidence from China
Document Type
Journal article
Source Publication
Journal of Corporate Finance
Publication Date
12-1-2008
Volume
14
Issue
5
First Page
642
Last Page
653
Publisher
Elsevier BV
Keywords
Capital structure, Investment, State ownership of banks and firms, China
Abstract
This study examines the relations between leverage and investment in China's listed firms, where corporate debt is principally provided by state-owned banks. We obtain three major findings. First, there is a negative relation between leverage and investment. Second, the negative relation between leverage and investment is weaker in firms with low growth opportunities and poor operating performance than in firms with high growth opportunities and good operating performance. Third, the negative relation between leverage and investment is weaker in firms with a higher level of state shareholding than in firms with a lower level of state shareholding. Overall, our results are consistent with the hypothesis that the state-owned banks in China impose fewer restrictions on the capital expenditures of low growth and poorly performing firms and also firms with greater state ownership. This creates an over-investment bias in these firms.
DOI
10.1016/j.jcorpfin.2008.08.002
Print ISSN
09291199
E-ISSN
18726313
Publisher Statement
Copyright © Journal of Corporate Finance
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Firth, M., Lin, C., Liu, P., & Wong, S. M. L. (2008). Leverage and investment under a state-owned bank lending environment: Evidence from China. Journal of Corporate Finance, 14(5), 642-653. doi: 10.1016/j.jcorpfin.2008.08.002