Dynamics of financial leverage across firm life cycle in Chinese firms: an empirical investigation using dynamic panel data model
BackgroundThis study tries to investigate how firms adjust their leverage policy across the firm's life cycle. For this purpose the study uses an extensive set of data of 867 A listed Chinese non financial firms over a nineteen years period (1996 2014).MethodsThe study employs Arellano Bover/Blundell Bond dynamic panel data model to estimate adjustment rate of leverage and its determinants in three different life stages of Chinese firms. We find that adjustment rate of leverage varies for different life stages.ResultsIn accordance with trade off theory of capital structure this study reports a low high low pattern of leverage across growth, maturity and decline stage of firms' life respectively. For total leverage, dynamic panel data reports highest adjustment rate for growing firms, followed by mature firms and firms in declining stage of their life.ConclusionsBoth short term and long term leverage report similar pattern of leverage's adjustment rate across the three stages of life cycle. The study provides useful insight in a unique market setting of Chinese financial markets.