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Institutional Ownership, Capital Structure and Performance of SMEs in China

Author

Listed:
  • Geeta Duppati
  • Rachita Gulati
  • Neha Matlani
  • Ploypailin Kijkasiwat

Abstract

This article examines the relationship between ownership, leverage, and performance for Chinese small and medium enterprises (SMEs). Our study sheds light on how institutional ownership affects the performance of Chinese SMEs. We use agency and the pecking order perspective as background theories for analysing the relationships between institutional ownership, capital structure, and firm performance. We use a range of regression estimations for robustness checks and include Quantile regression, static and dynamic panel regression models, and a two-step system Generalized Method of Moments (GMM) approach to explore data covering 2009–2015. Our findings show that institutional investor’s ownership affects the performance of Chinese SMEs positively and significantly. The negative relationship between leverage and performance indicates the dominance of family ownership in Chinese SMEs, where firms rely more on retained earnings for financing, which aligns with the pecking order theory (POT) perspective. The results also suggest that institutional ownership could mitigate agency issues in Chinese SMEs. JEL Classification: G30, G38, G39

Suggested Citation

  • Geeta Duppati & Rachita Gulati & Neha Matlani & Ploypailin Kijkasiwat, 2023. "Institutional Ownership, Capital Structure and Performance of SMEs in China," South Asian Journal of Macroeconomics and Public Finance, , vol. 12(2), pages 135-159, December.
    • Handle: RePEc:sae:smppub:v:12:y:2023:i:2:p:135-159
    DOI: 10.1177/22779787231196361
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    More about this item

    Keywords

    Institutional ownership; capital structure; Chinese SMEs; firm performance;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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