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Corruption, financial development and capital structure: evidence from China

Author

Listed:
  • Feng Wei
  • Yu Kong

Abstract

Purpose - This paper takes listed companies in the Shanghai and Shenzhen stock markets from 1998 to 2013 as a research sample, investigating the role played by corruption and financial development, along with the interactions between the two, in determining the factors of a company’s capital structure in China’s legal environment. The paper aims to discuss these issues. Design/methodology/approach - Using data of listed companies and the regional level of China during 1998-2013 and the STATA process (xtabond2 command) developed byRoodman (2006)to implement the two-step GMM estimation, empirically investigate the effect of interactions between corruption and financial development on a company’s capital structure in Chinese legal environment. Findings - After both controlling for China’s legal environment, a company’s internal factors, and industry factors and considering endogeneity problems, the results show that corruption and financial development have significant positive influences on a company’s bank loans. However, when investigating the interactions between corruption and financial development, the authors find that financial development does not increase a company’s bank loans in areas with a higher level of corruption. However, corruption and financial development have insignificant influences on a company’s long-term bank loans. Research limitations/implications - The findings in this study suggest that a company’s capital structure was affected not only by the company’s internal factors and industry factors, but also by the company’s external factors, and the interactions between these factors. Practical implications - To improve the financing circumstances of company credit, the next point of reform should be to improve their procedures for administrative examination and approval of bank creditors and strengthen the punishment and prevention of credit and judicial corruption to weaken the negative effects of corruption on firms’ capital structure decisions. Originality/value - This study uses only Chinese listed companies, and considers the influence of the interaction of corruption and financial development on a company’s capital structure decisions.

Suggested Citation

  • Feng Wei & Yu Kong, 2017. "Corruption, financial development and capital structure: evidence from China," China Finance Review International, Emerald Group Publishing Limited, vol. 7(3), pages 295-322, August.
    • Handle: RePEc:eme:cfripp:cfri-10-2016-0116
    DOI: 10.1108/CFRI-10-2016-0116
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    Citations

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    Cited by:

    1. Sherif El-Halaby & Hosam Abdelrasheed & Khaled Hussainey, 2021. "Corporate Cash Holdings and National Culture: Evidence from the Middle East and North Africa Region," JRFM, MDPI, vol. 14(10), pages 1-22, October.
    2. Yao, Xingyuan & Tang, Xiaobo, 2021. "Does financial structure affect CO2 emissions? Evidence from G20 countries," Finance Research Letters, Elsevier, vol. 41(C).
    3. Huang, Alan Guoming & Sun, Kevin Jialin, 2019. "Equity financing restrictions and the asset growth effect: International vs. Asian evidence," Pacific-Basin Finance Journal, Elsevier, vol. 57(C).
    4. Biruk B. Ashenafi & Dong Yan, 2023. "Financial intermediation, inclusion, Fintech, and income inequality in Africa: Robust evidence from the supply and demand side data," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 52(2), July.
    5. Yang, Hao & Zhang, Qiusheng & Zhao, Xiaofang & Wang, Zhongchao, 2022. "Does political corruption affect mergers and acquisitions decisions? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 248-266.
    6. Lakshmi, Geeta & Saha, Shrabani & Bhattarai, Keshab, 2021. "Does corruption matter for stock markets? The role of heterogeneous institutions," Economic Modelling, Elsevier, vol. 94(C), pages 386-400.
    7. Kun Lv & Shurong Yu & Dian Fu & Jingwen Wang & Chencheng Wang & Junbai Pan, 2022. "The Impact of Financial Development and Green Finance on Regional Energy Intensity: New Evidence from 30 Chinese Provinces," Sustainability, MDPI, vol. 14(15), pages 1-29, July.
    8. Cao, Peng & Qin, Lu & Zhu, Hongquan, 2019. "Local corruption and stock price crash risk: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 63(C), pages 240-252.
    9. Husam Rjoub & Jamiu Adetola Odugbesan & Tomiwa Sunday Adebayo & Wing-Keung Wong, 2021. "Sustainability of the Moderating Role of Financial Development in the Determinants of Environmental Degradation: Evidence from Turkey," Sustainability, MDPI, vol. 13(4), pages 1-18, February.
    10. Anh‐Tuan Doan & Bich‐Thanh Truong & Chi‐Cuong Nguyen & Phan‐Tam‐Nhu Nguyen & Hai‐Yen Truong & Anh‐Tuan Le, 2023. "Corruption and corporate leverage in an emerging economy: The role of economic freedom," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 94(2), pages 599-629, June.
    11. Yiyi Bai & Zhisheng Li & Huan Liu, 2019. "Financial outreach and household financial constraint," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(5), pages 1503-1523, March.

    More about this item

    Keywords

    Financial development; Corruption; Capital structure; Debt maturity; G21; G30;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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