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Capital structure adjustment behaviors of Chinese listed companies: Evidence from the Split Share Structure Reform in China

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  • He, Wei
  • Kyaw, NyoNyo A.

Abstract

The Split Share Structure Reform (SSSR) in China aims at reducing the agency problems between state owners and non-state shareholders via conversion of state-owned non-tradable shares into tradable shares, making state-owned shares sensitive to the stock market. The premise of the paper is that these changes would promote capital structure adjustments towards target leverage to maximize firm value. The evidence supports that the Split Share Structure Reform positively affects the leverage adjustment speeds of all firms after the share conversion. The firm level evidence indicates that the firms with better corporate governance mechanism featuring lower non-tradable state ownership and independent board adjust faster, and the firms with higher growth potential and bankruptcy risk also rebalance faster than the counterparts towards the optimal leverage. Nevertheless, entrenchment effect of concentrated ownership still dominates corporate structure decisions despite the reform.

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  • He, Wei & Kyaw, NyoNyo A., 2018. "Capital structure adjustment behaviors of Chinese listed companies: Evidence from the Split Share Structure Reform in China," Global Finance Journal, Elsevier, vol. 36(C), pages 14-22.
    • Handle: RePEc:eee:glofin:v:36:y:2018:i:c:p:14-22
    DOI: 10.1016/j.gfj.2018.02.006
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    Cited by:

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    2. Wei He & Qian Wang, 2020. "The peer effect of corporate financial decisions around split share structure reform in China," Review of Financial Economics, John Wiley & Sons, vol. 38(3), pages 474-493, July.
    3. Sultan Sikandar Mirza & Tanveer Ahsan & Raheel Safdar & Ajid Ur Rehman, 2020. "Competition, Debt Maturity, and Adjustment Speed in China: A Dynamic Fractional Estimation Approach," JRFM, MDPI, vol. 13(5), pages 1-17, May.
    4. Zhang, Jianhua & Zhao, Zhao & Jian, Wenqing, 2020. "Do cash flow imbalances facilitate leverage adjustments of Chinese listed firms? Evidence from a dynamic panel threshold model," Economic Modelling, Elsevier, vol. 89(C), pages 201-214.
    5. Carlos Omar Trejo-Pech & NyoNyo A. Kyaw & Wei He, 2021. "Capital structure adjustment behavior of listed firms on the Mexican stock exchange," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 45(4), pages 573-595, October.
    6. Ayman Hassan Bazhair & Mohammed Naif Alshareef, 2022. "Dynamic relationship between ownership structure and financial performance: a Saudi experience," Cogent Business & Management, Taylor & Francis Journals, vol. 9(1), pages 2098636-209, December.
    7. Zhang, Xiang & Zhang, Zongyi & Zhou, Han, 2020. "Oil price uncertainty and cash holdings: Evidence from China," Energy Economics, Elsevier, vol. 87(C).
    8. Wei He & NyoNyo A Kyaw, 2023. "Macroeconomic risks and capital structure adjustment speed: The Chinese evidence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2885-2899, July.
    9. Ripamonti, Alexandre, 2020. "Financial institutions, asymmetric information and capital structure adjustments," The Quarterly Review of Economics and Finance, Elsevier, vol. 77(C), pages 75-83.
    10. Xiang Zhang & Zongyi Zhang & Han Zhou, 2023. "Grabbing hand or financial constraint mitigation effect? A reexamination of the relationship between institutional development and cash holdings," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(1), pages 631-655, March.
    11. Liu, Haiming & Chiang, Yao-Min, 2022. "Confucianism and IPO underpricing," Pacific-Basin Finance Journal, Elsevier, vol. 71(C).
    12. Thao Nguyen & Min Bai & Greg Hou & Cameron Truong, 2022. "Drought risk and capital structure dynamics," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(3), pages 3397-3439, September.

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    More about this item

    Keywords

    Capital structure; Speed of adjustment; Split Share Structure Reform; Corporate governance;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • F3 - International Economics - - International Finance

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