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Ownership structure, economic fluctuation, and capital structure: Evidence from China

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  • Xi Wang
  • David Manry
  • Gina Rosa

Abstract

We investigate the influence of controlling shareholders, including governmental ownership, on the debt levels of Chinese firms during varying economic conditions. Consistent with previous research, we find that listed firms in China have significantly more short‐term debt than long‐term debt. We also find that as the percentage ownership of the largest shareholder increases, less debt (as a percentage of total assets) is generally preferred. During economic slowdowns, firms tend to reduce their short‐term debt levels, although long‐term debt appears to increase. Further tests reveal that entrepreneur‐controlled firms reduce long‐term debt during economic slowdowns, suggesting that they take into consideration the implications of changes in macroeconomic conditions for earnings and liquidity when making debt financing decisions. However, we also find that State‐controlled firms in China tend to increase short‐term borrowing during declines in macroeconomic conditions, consistent with the implications of “tunneling and propping.”

Suggested Citation

  • Xi Wang & David Manry & Gina Rosa, 2019. "Ownership structure, economic fluctuation, and capital structure: Evidence from China," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 24(2), pages 841-854, April.
    • Handle: RePEc:wly:ijfiec:v:24:y:2019:i:2:p:841-854
    DOI: 10.1002/ijfe.1694
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    Cited by:

    1. Xinhai Lu & Mingxu Bai & Bing Kuang & Danling Chen, 2021. "Unlocking the Relationship between Land Finance and Regional Integration," Land, MDPI, vol. 10(9), pages 1-17, August.
    2. Albert Danso & Samuel Fosu & Samuel Owusu‐Agyei & Collins G. Ntim & Emmanuel Adegbite, 2021. "Capital structure revisited. Do crisis and competition matter in a Keiretsu corporate structure?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5073-5092, October.
    3. Wei Huang & Mahnoor Sattar, 2021. "Corporate finance policies, subsidies and R&D: Evidence from China," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 3875-3891, July.
    4. Rupika Khanna & Chandan Sharma & Abhay Pant, 2022. "COVID-19, firm characteristics and stock volatility: new evidence from the Indian tourism sector," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 19(6), pages 1563-1585, October.
    5. Tiago Loncan & Styliani Panetsidou & Angelos Synapis, 2024. "Leverage, investment and institutional environments: Evidence from emerging markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 849-866, January.
    6. Xiaojian Hu & Gang Yao & Taiyun Zhou, 2022. "Does ownership structure affect the optimal capital structure? A PSTR model for China," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 2458-2480, April.
    7. Chu Wang & Char-Lee Lok & Lian Kee Phua, 2023. "Ownership Structure and Capital Structure: Moderating Effect of Product Market Maturity," SAGE Open, , vol. 13(4), pages 21582440231, December.

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