The Determinants of Capital Structure Evidence from China
Purpose This paper investigates the determinants of capital structure using a cross section sample of 1481 non financial firms listed on the Chinese stock exchanges in 2011. Design/methodology/approach Employing four leverage measures (total leverage and long term leverage in terms of both book value and market value, respectively) this study examines the effects of factors with proven influences on capital structure in literature, along with industry effect and ownership effect. Findings We find that large firms favour debt financing while profitable firms rely more on internal capital accumulation. Intangibility and business risk increase the level of debt financing but tax has little impact on capital structure. We also observe strong industrial effect and ownership effect. Real estate firms borrow considerably more and firms from utility and manufacturing industries use more long term debt despite Chinese firms generally employ significantly more short term debt. On the other hand, firms with state ownership tend to borrow more, while firms with foreign ownership choose more equity financing. Practical implications These results may provide important implications to investors in making investment decision and to firms in making financing decisions. Originality/value this paper uses by far the largest and latest sample from the Chinese stock markets, offering the most complete picture of the financing behaviours in the Chinese firms, with known characters and the impact of ownerships.