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The role of internally financed capex in rising Chinese corporate debts

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  • Guonan Ma

    (About Capital Management, Hong Kong)

  • Jinzhao Chen

    (ESSCA School of Management, France)

Abstract

Our paper aims to understand potential drivers behind China’s rising corporate leverage, using an international aggregate panel dataset. We find strong evidence of significantly negative effects of the internally financed share of capex on the change of corporate debt/GDP: a rise in corporate earnings relative to corporate investment consistently slows corporate debt buildup. This finding is robust to choices of benchmark models, control variables, and data samples. Our regressions also confirm more important roles played by real economic factors than monetary factors. While the investment rate contributes to rising corporate debt, a higher saving rate dampens corporate leveraging. Finally, we find some evidence of consistently negative impacts of government debt on corporate leveraging, suggesting possible interactions between corporate and government debts.

Suggested Citation

  • Guonan Ma & Jinzhao Chen, 2019. "The role of internally financed capex in rising Chinese corporate debts," GRU Working Paper Series GRU_2019_003, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    • Handle: RePEc:cth:wpaper:gru_2019_003
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    Cited by:

    1. is not listed on IDEAS
    2. Iikka Korhonen, 2019. "Forty Years of Chinese Reforms: An Overview," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 61(3), pages 349-358, September.

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