Large shareholders, legal institution and capital structure decision

Purpose - The purpose of this paper is to explain theoretically the relation between large shareholders, legal institutions, and capital structure, then empirically deduce how large shareholders and legal institution affected capital structure decision by integrating Chinese institutions. Design/methodology/approach - This paper adopted cross‐section data of non‐financial listed companies in China and applied series of ordinary least square to empirically test the relationship between large shareholders, legal institution, and capital structure decision. Findings - The empirical evidence provided by this paper indicates that large shareholders and legal institution do affect capital structure decision, specifically in seven areas. Originality/value - This paper, based on the institutions of China, takes the largest shareholder, ultimately the controller, the relation of legal institution and capital structure into the research framework for the first time and systematically studies how the capital structure decision making is affected by the controlling shareholders, the nature of ultimately controllers, the concentration degree of shares held by a few large shareholders and legal institution. It is the first to empirically test whether the concentration degree of shares held by a few large shareholders and legal institution will affect the relation between controlling shareholders and capital structure, and compensates for the deficiencies in previous studies.