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Testing the Pecking-Order Theory: Evidence from Chinese Listed Companies

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  • Jinlan Ni
  • Miaomiao Yu

Abstract

The pecking-order theory of capital structure, which predicts that firms prefer internal to external finance, is one of the most influential theories of corporate leverage. This article examines whether the financial structure of China's listed companies follows a pecking order from debt to equity. Using the entire cross-section sample of China's listed companies in 2004, the authors find no evidence that China's listed companies follow a pecking order when they need funds to finance investment projects. Further subgroup analyses indicate that big companies follow a pecking order and small and medium companies do not. These results suggest that the Chinese capital market is still under development. However, the large companies face a relatively looser financing environment than the small ones.

Suggested Citation

  • Jinlan Ni & Miaomiao Yu, 2008. "Testing the Pecking-Order Theory: Evidence from Chinese Listed Companies," Chinese Economy, Taylor & Francis Journals, vol. 41(1), pages 97-113, January.
    • Handle: RePEc:mes:chinec:v:41:y:2008:i:1:p:97-113
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    Cited by:

    1. Кокорева Мария Сергеевна & Степанова Анастасия Николаевна, 2012. "Financial architecture and corporate performance: evidence from Russia," Journal of Corporate Finance Research Корпоративные финансы, CyberLeninka;Федеральное государственное автономное образовательное учреждение высшего образования «Национальный исследовательский университет «Высшая школа экономики», issue 2 (22), pages 34-44.
    2. Huu Manh Nguyen & Thi Huong Giang Vuong & Thi Huong Nguyen & Yang-Che Wu & Wing-Keung Wong, 2020. "Sustainability of Both Pecking Order and Trade-Off Theories in Chinese Manufacturing Firms," Sustainability, MDPI, vol. 12(9), pages 1-25, May.
    3. Liang Guo & Ya Dai & Donald Lien, 2016. "The effects of China’s split-share reform on firms’ capital structure choice," Applied Economics, Taylor & Francis Journals, vol. 48(27), pages 2530-2549, June.

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