The financing behaviour of listed Chinese firms
British Accounting Review
Agency theory, Capital structure, China, Financing behaviour, Pecking order hypothesis, Static trade-off model
This paper examines the corporate financing behaviour of listed companies in the People's Republic of China. Our results suggest that some determinants of firm leverage (e.g., size, asset tangibility, growth opportunities and profitability) commonly cited in studies on developed economies also appear to be important in China. In particular, the positive relationships that firm size and asset tangibility have with firm leverage are consistent with the predictions of the static trade-off capital structure model. However, these commonly quoted determinants function in a way different from that reported in developing countries. Moreover, we do not find that State ownership, legal person ownership and foreign ownership have important influences on the capital structure choices of Chinese firms. Given the tight regulatory control over equity issues and acute owner-manager incentive conflicts in State-owned firms, we also hypothesise, and find evidence to support, that Chinese firms have built-in incentives for raising equity. This provides one explanation of the negative effect of profitability on firm leverage and shows that some of the unique Chinese institutional features do help shape corporate financing behaviour.
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Zou, H., & Xiao, J. Z. (2006). The financing behaviour of listed Chinese firms. British Accounting Review, 38(3), 239-258. doi: 10.1016/j.bar.2006.04.008