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Ownership, institutions, and capital structure: Evidence from China

  • Li, Kai
  • Yue, Heng
  • Zhao, Longkai

We employ a unique data set to explore the role of ownership structure and institutional development in debt financing of non-publicly traded Chinese firms. We show that state ownership is positively associated with leverage and firms' access to long-term debt, while foreign ownership is negatively associated with all measures of leverage. Surprisingly, firms in better developed regions are associated with reduced access to long-term debt, suggesting the availability of alternative financing channels and the tightening of the lending standards under the on-going banking reform. The combination of ownership structures and institutions explains up to 6% of the total variation in firms' leverage decisions, while firm characteristics alone explain no more than 8% of the variation. Further, we show that non-state-owned firms tend to have lower total and short-term debt than their state-owned counterparts in less developed regions. Finally, we show that state-owned firms' easy access to long-term debt is positively associated with long-term investment and negatively associated with firm performance.

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Article provided by Elsevier in its journal Journal of Comparative Economics.

Volume (Year): 37 (2009)
Issue (Month): 3 (September)
Pages: 471-490

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Handle: RePEc:eee:jcecon:v:37:y:2009:i:3:p:471-490
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622864

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