IDEAS home Printed from https://ideas.repec.org/a/eee/bracre/v38y2006i3p239-258.html
   My bibliography  Save this article

The financing behaviour of listed Chinese firms

Author

Listed:
  • Zou, Hong
  • Xiao, Jason Zezhong

Abstract

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.

Suggested Citation

  • Zou, Hong & Xiao, Jason Zezhong, 2006. "The financing behaviour of listed Chinese firms," The British Accounting Review, Elsevier, vol. 38(3), pages 239-258.
    • Handle: RePEc:eee:bracre:v:38:y:2006:i:3:p:239-258
    DOI: 10.1016/j.bar.2006.04.008
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0890838906000321
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.bar.2006.04.008?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    2. Simon Johnson, 2000. "Tunneling," American Economic Review, American Economic Association, vol. 90(2), pages 22-27, May.
    3. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    4. Smith, Clifford Jr. & Watts, Ross L., 1992. "The investment opportunity set and corporate financing, dividend, and compensation policies," Journal of Financial Economics, Elsevier, vol. 32(3), pages 263-292, December.
    5. Gul, Ferdinand A., 1999. "Government share ownership, investment opportunity set and corporate policy choices in China," Pacific-Basin Finance Journal, Elsevier, vol. 7(2), pages 157-172, May.
    6. Bradley, Michael & Jarrell, Gregg A & Kim, E Han, 1984. "On the Existence of an Optimal Capital Structure: Theory and Evidence," Journal of Finance, American Finance Association, vol. 39(3), pages 857-878, July.
    7. Harris, Milton & Raviv, Artur, 1991. "The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
    8. Wallace, R. S. Olusegun & Naser, Kamal, 1995. "Firm-specific determinants of the comprehensiveness of mandatory disclosure in the corporate annual reports of firms listed on the stock exchange of Hong Kong," Journal of Accounting and Public Policy, Elsevier, vol. 14(4), pages 311-368.
    9. Eugene F. Fama, 2002. "Testing Trade-Off and Pecking Order Predictions About Dividends and Debt," The Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 1-33, March.
    10. Hong Zou & Mike B. Adams & Mike J. Buckle, 2003. "Corporate Risks and Property Insurance: Evidence From the People's Republic of China," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 70(2), pages 289-314, June.
    11. Warner, Jerold B, 1977. "Bankruptcy Costs: Some Evidence," Journal of Finance, American Finance Association, vol. 32(2), pages 337-347, May.
    12. Lisa A. Keister, 2004. "Capital Structure in Transition: The Transformation of Financial Strategies in China's Emerging Economy," Organization Science, INFORMS, vol. 15(2), pages 145-158, April.
    13. John R. Graham & Daniel A. Rogers, 2002. "Do Firms Hedge in Response to Tax Incentives?," Journal of Finance, American Finance Association, vol. 57(2), pages 815-839, April.
    14. Laurence Booth & Varouj Aivazian & Asli Demirguc‐Kunt & Vojislav Maksimovic, 2001. "Capital Structures in Developing Countries," Journal of Finance, American Finance Association, vol. 56(1), pages 87-130, February.
    15. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    16. Lee, Cheng F & Rui, Oliver M, 2000. "Does Trading Volume Contain Information to Predict Stock Returns? Evidence from China's Stock Markets," Review of Quantitative Finance and Accounting, Springer, vol. 14(4), pages 341-360, June.
    17. Rajan, Raghuram G & Zingales, Luigi, 1995. "What Do We Know about Capital Structure? Some Evidence from International Data," Journal of Finance, American Finance Association, vol. 50(5), pages 1421-1460, December.
    18. Qi, Daqing & Wu, Woody & Zhang, Hua, 2000. "Shareholding structure and corporate performance of partially privatized firms: Evidence from listed Chinese companies," Pacific-Basin Finance Journal, Elsevier, vol. 8(5), pages 587-610, October.
    19. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    20. Myers, Stewart C, 1984. "The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-592, July.
    21. Qian, Yingyi & Roland, Gerard & Xu, Chenggang, 1999. "Why is China different from Eastern Europe? Perspectives from organization theory," European Economic Review, Elsevier, vol. 43(4-6), pages 1085-1094, April.
    22. Frank, Murray Z. & Goyal, Vidhan K., 2003. "Testing the pecking order theory of capital structure," Journal of Financial Economics, Elsevier, vol. 67(2), pages 217-248, February.
    23. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
    24. Wiwattanakantang, Yupana, 1999. "An empirical study on the determinants of the capital structure of Thai firms," Pacific-Basin Finance Journal, Elsevier, vol. 7(3-4), pages 371-403, August.
    25. Xiao, Jason Zezhong & Yang, He & Chow, Chee W., 2004. "The determinants and characteristics of voluntary Internet-based disclosures by listed Chinese companies," Journal of Accounting and Public Policy, Elsevier, vol. 23(3), pages 191-225.
    26. Singh, Ajit, 1994. "Corporate financial patterns in industrialising economies: a comparative international study," MPRA Paper 54936, University Library of Munich, Germany.
    27. M.K. Leung & T. Young, 2002. "China's entry to the WTO: managerial implications for foreign banks," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(1), pages 1-8.
    28. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Zhang, Dongyang & Liu, Deqiang, 2017. "Determinants of the capital structure of Chinese non-listed enterprises: Is TFP efficient?," Economic Systems, Elsevier, vol. 41(2), pages 179-202.
    2. Maria Psillaki & Nikolaos Daskalakis, 2009. "Are the determinants of capital structure country or firm specific?," Small Business Economics, Springer, vol. 33(3), pages 319-333, October.
    3. Vo, Xuan Vinh, 2017. "Determinants of capital structure in emerging markets: Evidence from Vietnam," Research in International Business and Finance, Elsevier, vol. 40(C), pages 105-113.
    4. Mário Santos & António Moreira & Elisabete Vieira, 2014. "Ownership concentration, contestability, family firms, and capital structure," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(4), pages 1063-1107, November.
    5. Isil Erol & Dogan Tirtiroglu, 2011. "Concentrated Ownership, No Dividend Payout Requirement and Capital Structure of REITs: Evidence from Turkey," The Journal of Real Estate Finance and Economics, Springer, vol. 43(1), pages 174-204, July.
    6. Miguel Acedo-Ramírez & Juan Ayala-Calvo & José Rodríguez-Osés, 2013. "Capital structure of small companies in the Spanish footwear sector: relevant factors," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 4(2), pages 155-173, June.
    7. Temimi, Akram & Zeitun, Rami & Mimouni, Karim, 2016. "How does the tax status of a country impact capital structure? Evidence from the GCC region," Journal of Multinational Financial Management, Elsevier, vol. 37, pages 71-89.
    8. Yildirim, Ramazan & Masih, Mansur & Bacha, Obiyathulla Ismath, 2018. "Determinants of capital structure: evidence from Shari'ah compliant and non-compliant firms," Pacific-Basin Finance Journal, Elsevier, vol. 51(C), pages 198-219.
    9. Todd Mitton, 2008. "Why Have Debt Ratios Increased for Firms in Emerging Markets?," European Financial Management, European Financial Management Association, vol. 14(1), pages 127-151, January.
    10. Valeriya Valer’evna Metel’skaya, 2021. "Correlation-and-regression analysis of the influence of macroeconomic factors on capital structure of Russian corporations under crisis conditions," Journal of Innovation and Entrepreneurship, Springer, vol. 10(1), pages 1-34, December.
    11. Niluthpaul Sarker & Roushanara Islam, 2021. "Issues on Bank’s Capital Structure and Profitability: A Developing Country Context," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(1), pages 86-104.
    12. Dimitris Margaritis & Maria Psillaki, 2007. "Capital Structure and Firm Efficiency," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 34(9‐10), pages 1447-1469, November.
    13. Firano, Zakaria & Filali adib, Fatine, 2022. "Optimal Capital structure and financial stability," MPRA Paper 115790, University Library of Munich, Germany, revised 2022.
    14. Rana El Bahsh & Ali Alattar & Aziz N. Yusuf, 2018. "Firm, Industry and Country Level Determinants of Capital Structure: Evidence from Jordan," International Journal of Economics and Financial Issues, Econjournals, vol. 8(2), pages 175-190.
    15. Sjur Westgaard & Amund Eidet & Stein Frydenberg & Thor Christian Grosås, 2008. "Investigating the Capital Structure of UK Real Estate Companies," Journal of Property Research, Taylor & Francis Journals, vol. 25(1), pages 61-87, August.
    16. Muhammad Yusuf Amin & Amanat Ali & Bashir Khan, 2019. "Capital Structure of Chinese Firms Across different Sectors: Does Ownership Structure Matter?," Global Economics Review, Humanity Only, vol. 4(2), pages 70-82, June.
    17. Fattouh, Bassam & Scaramozzino, Pasquale & Harris, Laurence, 2005. "Capital structure in South Korea: a quantile regression approach," Journal of Development Economics, Elsevier, vol. 76(1), pages 231-250, February.
    18. Antonczyk, Ron Christian & Salzmann, Astrid Juliane, 2014. "Overconfidence and optimism: The effect of national culture on capital structure," Research in International Business and Finance, Elsevier, vol. 31(C), pages 132-151.
    19. Mohamed, Hisham Hanifa & Masih, Mansur & Bacha, Obiyathulla I., 2015. "Why do issuers issue Sukuk or conventional bond? Evidence from Malaysian listed firms using partial adjustment models," Pacific-Basin Finance Journal, Elsevier, vol. 34(C), pages 233-252.
    20. Pinto, João M. & Silva, Cátia S., 2021. "Does export intensity affect corporate leverage? Evidence from Portuguese SMEs," Finance Research Letters, Elsevier, vol. 38(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:bracre:v:38:y:2006:i:3:p:239-258. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.journals.elsevier.com/the-british-accounting-review .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.