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Split-share reforms and capital structure adjustment in China: a dynamic panel fractional estimation

Author

Listed:
  • Tanveer Ahsan
  • Sultan Sikandar Mirza
  • Bakr Al-Gamrh
  • Muhammad Zubair Tauni

Abstract

Purpose - The purpose of this study is to explain the adjustment rate toward the target capital structure of Chinese nonfinancial listed firms and to investigate the impacts of the split-share reforms (2005–2006) on the capital structure adjustment rate. Design/methodology/approach - The authors control for the unobserved heterogeneity and the fractional nature of the adjustment rate by applying an unbiased dynamic panel fractional estimator on the unbalanced panel data of 27,545 firm-year observations of Chinese nonfinancial firms listed during 1998–2015. Findings - The authors find that Chinese firms adjust at an annual rate of 19–27% to reach their capital structure targets. The authors also find a positive impact of the split-share reforms on the adjustment rates of Chinese nonfinancial firms toward their target capital structure. Split-share reforms also helped Chinese firms to increase the use of equity financing in their capital structure. Practical implications - The authors argue that the government should strengthen capital markets to enable easy access to more financing options so that Chinese firms can acquire cheaper external financing. Originality/value - To the best of authors' knowledge, this is the first study that applies an unbiased dynamic panel fractional estimator on an extended data set of 27,545 firm-year observations of Chinese nonfinancial firms listed during 1998–2015.

Suggested Citation

  • Tanveer Ahsan & Sultan Sikandar Mirza & Bakr Al-Gamrh & Muhammad Zubair Tauni, 2020. "Split-share reforms and capital structure adjustment in China: a dynamic panel fractional estimation," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 47(6), pages 1265-1280, May.
  • Handle: RePEc:eme:jespps:jes-03-2019-0096
    DOI: 10.1108/JES-03-2019-0096
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    Cited by:

    1. Chai Bin‐Feng & Sultan Sikandar Mirza & Tanveer Ahsan & Ammar Ali Gull & Bakr Al‐Gamrh, 2022. "Institutional environment, the ultimate controller's characteristics and CSR disclosure in China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(5), pages 1515-1527, July.

    More about this item

    Keywords

    Adjustment rate; Dynamic panel fractional estimator; Target capital structure; Split-share reforms; C23; G30; G32;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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