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The inner structure of pyramid and capital structure: Evidence from China

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  • Su, Kun
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    Abstract

    This paper examines the relationship between capital structure and the inner structure of pyramid in an emerging market economy country. The author uses firm-level panel data of Chinese listed companies to analyze the influence of the inner structure of pyramid on capital structure and the differences between different institutional environments of that influence deeply. His results show that the longer the layers of pyramid structure, the stronger the leverage effect of pyramid structure, as well as the ultimate controllers' motivation to expand debt financing will be. So the layers of pyramid structure have a significantly positive effect on capital structure. However, the chains of pyramid structure have no significant effects on capital structure. Compared with the areas with poor institutional environment, in the areas with better institutional environment, the effects of the layers of pyramid structure on corporate capital structure is relatively small.

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    Paper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2014-5.

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    Date of creation: 2014
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    Handle: RePEc:zbw:ifwedp:20145
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    Keywords: pyramid structure; institutional environment; capital structure; agent chain;

    Find related papers by JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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    1. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 1998. "Corporate Ownership Around the World," Harvard Institute of Economic Research Working Papers 1840, Harvard - Institute of Economic Research.
    2. Stijn Claessens & Simeon Djankov & Joseph P. H. Fan & Larry H. P. Lang, 2002. "Disentangling the Incentive and Entrenchment Effects of Large Shareholdings," Journal of Finance, American Finance Association, vol. 57(6), pages 2741-2771, December.
    3. Yves Bozec & Claude Laurin, 2008. "Large Shareholder Entrenchment and Performance: Empirical Evidence from Canada," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(1-2), pages 25-49.
    4. Firth, Michael & Lin, Chen & Liu, Ping & Wong, Sonia M.L., 2009. "Inside the black box: Bank credit allocation in China's private sector," Journal of Banking & Finance, Elsevier, vol. 33(6), pages 1144-1155, June.
    5. Liu, Qigui & Tian, Gary, 2012. "Controlling shareholder, expropriations and firm's leverage decision: Evidence from Chinese Non-tradable share reform," Journal of Corporate Finance, Elsevier, vol. 18(4), pages 782-803.
    6. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
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    Cited by:

    1. Godlewski, Christophe J., 2014. "The determinants of multiple bank loan renegotiations in Europe," International Review of Financial Analysis, Elsevier, vol. 34(C), pages 275-286.

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