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The Determinants of Capital Structure: Evidence from Chinese Listed Companies


  • Jian Chen


  • Roger Strange


This paper attempts to investigate the determinants of the capital structure of a sample of 972 listed companies on the Shanghai Stock Exchange and Shenzhen Stock Exchange in China in 2003. Various theories, namely, the trade-off, pecking order and agency theories, are deployed to explain and predict the signs and significance of each factor identified by Ragan and Zingales (1995) and Booth et al. (2001). Furthermore, we include institutional shareholdings, including state agency shareholdings, state-owned shareholdings and privately owned shareholdings, as corporate governance variables to examine the effects of corporate structure on the debt financing behaviours. As well documented, we find that profitability is negatively related to capital structure at a highly significant level. The size and risk of the firms are positively related to the debt ratio – but only in term of market value measures of capital structure. The years of the companies being listed on stock markets are positively related to capital structure, indicating the access of the firms to debt finance is more easily judged by book value. Tax is not a factor in influencing debt ratio. Ownership structure has a negative effect on the capital structure. The firms with higher institutional shareholdings tend to avoid using debt financing, a behaviour that can be explained by entrenchment effects. A further classification of the institutional shareholders reveals that, among the three groups of institutional shareholding, the state institutions, including state agency and state-owned institutions, were more averse to debt financing, particularly for state-owned institutions. There is no strong evidence indicating debt-averse behaviour by domestic institutional shareholders. Copyright Springer 2005

Suggested Citation

  • Jian Chen & Roger Strange, 2005. "The Determinants of Capital Structure: Evidence from Chinese Listed Companies," Economic Change and Restructuring, Springer, vol. 38(1), pages 11-35, March.
  • Handle: RePEc:kap:ecopln:v:38:y:2005:i:1:p:11-35
    DOI: 10.1007/s10644-005-4521-7

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    References listed on IDEAS

    1. Murray Z. Frank & Vidhan K. Goyal, 2009. "Capital Structure Decisions: Which Factors Are Reliably Important?," Financial Management, Financial Management Association International, vol. 38(1), pages 1-37, March.
    2. Michael J. Barclay & Erwan Morellec, 2006. "On the Debt Capacity of Growth Options," The Journal of Business, University of Chicago Press, vol. 79(1), pages 37-60, January.
    3. Igor Filatotchev & Tomasz Mickiewicz, 2001. "Ownership Concentration, 'Private Benefits of Control' and Debt Financing," UCL SSEES Economics and Business working paper series 4, UCL School of Slavonic and East European Studies (SSEES).
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    Cited by:

    1. Feld, Lars P. & Heckemeyer, Jost H. & Overesch, Michael, 2013. "Capital structure choice and company taxation: A meta-study," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2850-2866.
    2. Ela Mahdaleta & Iskandar Muda & Gusnardi Muhammad Nasir, 2016. "Effects of Capital Structure and Profitability on Corporate Value with Company Size as the Moderating Variable of Manufacturing Companies Listed on Indonesia Stock Exchange," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 2(3), pages 30-43, September.
    3. Vo, Xuan Vinh, 2017. "Determinants of capital structure in emerging markets: Evidence from Vietnam," Research in International Business and Finance, Elsevier, vol. 40(C), pages 105-113.
    4. Songul KAKILLI ACARAVCI, 2015. "The Determinants of Capital Structure: Evidence from the Turkish Manufacturing Sector," International Journal of Economics and Financial Issues, Econjournals, vol. 5(1), pages 158-171.
    5. An, Zhiyong & Tan, Congyan, 2014. "Taxation and income shifting: Empirical evidence from a quasi-experiment in China," Economic Systems, Elsevier, vol. 38(4), pages 588-596.
    6. Anwar, Sajid & Sun, Sizhong, 2015. "Can the presence of foreign investment affect the capital structure of domestic firms?," Journal of Corporate Finance, Elsevier, vol. 30(C), pages 32-43.
    7. An, Zhiyong, 2012. "Taxation and capital structure: Empirical evidence from a quasi-experiment in China," Journal of Corporate Finance, Elsevier, vol. 18(4), pages 683-689.
    8. Gholamreza Zamanian & Kamran Mahmodpour & Sepideh Yari, 2017. "Exchange Rate Uncertainty Effect on Export-Oriented Companies at Tehran Stock Exchange (Yield) Rate of Return: A Panel-Vector Autoregressive Model," International Journal of Economics and Financial Issues, Econjournals, vol. 7(1), pages 207-213.
    9. Aoife Hanley & Wan-Hsin Liu & Andrea Vaona, 2015. "Credit depth, government intervention and innovation in China: evidence from the provincial data," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 5(1), pages 73-98, June.
    10. Jun Du & Alessandra Guariglia & Alexander Newman, "undated". "Does social capital affect the financing decisions of Chinese small and medium-sized enterprises?," Discussion Papers 10/13, University of Nottingham, GEP.
    11. Voutsinas, Konstantinos & Werner, Richard A., 2011. "Credit supply and corporate capital structure: Evidence from Japan," International Review of Financial Analysis, Elsevier, vol. 20(5), pages 320-334.

    More about this item


    capital structure; ownership structure; G31; G32;

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • 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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