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Ownership‐control rights divergence, government intervention and choice of capital structure

Author

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  • Xiao Zuoping

Abstract

Purpose - The purpose of this paper is to empirically test how ultimate controlling shareholders' ownership‐control rights divergence and government intervention affect choice of capital structure (CS), and how the relationship between controlling shareholders' ownership‐control rights divergence and choice of CS is affected by government intervention. Design/methodology/approach - Integrating the institutional background of China, the paper adopts balanced panel data containing related continuously obtainable information of 1,076 non‐financial companies listed in Shanghai and Shenzhen from 2004 to 2008 (a total of 5,380 observed values), and applies a series of generalised least squares to empirically test how ultimate controlling shareholders' ownership‐control rights divergence and government intervention affect choice of CS, and how the relationship between controlling shareholders' ownership‐control rights divergence and choice of CS is affected by government intervention. Findings - The empirical evidence provided by this paper indicates that: controlling shareholders' ownership‐control rights divergence is negatively correlated with leverage; government intervention is positively correlated with leverage; and government intervention will weaken the negative relationship between controlling shareholders' ownership‐control rights divergence and leverage, and make debt capital suppliers (especially financial institutions like banks, etc.) provide loans, especially long‐term ones, to companies with high ownership‐control rights divergence. Originality/value - So far, it is still little‐known how ownership‐control rights divergence affects choice of CS and how government intervention affects the relationship between ownership and control rights divergence and choices of CS. This paper is the first to test how ultimate controlling shareholders' ownership‐control rights divergence and government intervention affect choice of CS, and how the relationship between controlling shareholders' ownership‐control rights divergence and choice of CS is affected by government intervention based on the institutional background of China.

Suggested Citation

  • Xiao Zuoping, 2011. "Ownership‐control rights divergence, government intervention and choice of capital structure," Nankai Business Review International, Emerald Group Publishing Limited, vol. 2(3), pages 303-324, August.
    • Handle: RePEc:eme:nbripp:v:2:y:2011:i:3:p:303-324
    DOI: 10.1108/20408741111155316
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    Citations

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    Cited by:

    1. Karartı, Tuncay, 2014. "Impact of ownership structure on leverage of non-financial firms in developing countries," MPRA Paper 61483, University Library of Munich, Germany.
    2. Demircioğlu, Emre, 2014. "Organization performance and happiness in the context of leadership behavior (case study base on psychological well-beings)," MPRA Paper 61484, University Library of Munich, Germany.
    3. Shah, Muhammad Hashim & Xiao, Zuoping & Abdullah, & Quresh, Shakir & Ahmad, Mushtaq, 2020. "Internal pyramid structure, contract enforcement, minority investor protection, and firms’ performance: Evidence from emerging economies," Research in International Business and Finance, Elsevier, vol. 52(C).

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