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Impact of the Debt Ratio on Firm Investment: A case study of listed companies in China

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  • YUAN Yuan
  • MOTOHASHI Kazuyuki

Abstract

In this paper, we analyze whether the total debt ratios and bank loan ratios of Chinese listed companies had any impact on their fixed investment in 2001-2006, and whether this impact, if it existed, differed among companies with differing investment opportunities. Our results are as follows. First, our analysis reveals that the total debt ratio (bank loan ratio) did have a negative impact on fixed investment among Chinese listed companies. Secondly, the total debt ratio (bank loan ratio) had a stronger negative impact on low-growth companies than on high-growth companies, implying that the total debt ratio (bank loan ratio) actually restrained companies from overinvestment. Finally, the analysis led to the interesting result that the bank loan ratio had a stronger impact on fixed investment than the total debt ratio, and actually had the strong effect of restraining investment particularly by low-growth companies, implying that in China, banks supervise the investment activities of companies more strongly than other creditors.

Suggested Citation

  • YUAN Yuan & MOTOHASHI Kazuyuki, 2008. "Impact of the Debt Ratio on Firm Investment: A case study of listed companies in China," Discussion papers 08011, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:08011
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    Cited by:

    1. Hadeel Yaseen & Ghassan Omet & Morad Abdel-Halim, 2015. "The 2008 Global Financial Crisis: The Case of a Market with Consistent Losses Ever Since," Eurasian Journal of Business and Management, Eurasian Publications, vol. 3(1), pages 8-19.
    2. Ghassan Omet, 2011. "Stock Market Liquidity: Comparative Analysis of The Abu Dhabi Stock Exchange and Dubai Financial Market," Working Papers 655, Economic Research Forum, revised 12 Jan 2011.

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