Ownership, institutions, and capital structure: Evidence from China

Li, Kai, Yue, Heng, and Zhao, Longkai-Ownership, institutions, and capital structure: Evidence from China We employ a unique data set to explore the role of ownership structure and institutional development in debt financing of non-publicly traded Chinese firms. We show that state ownership is positively associated with leverage and firms' access to long-term debt, while foreign ownership is negatively associated with all measures of leverage. Surprisingly, firms in better developed regions are associated with reduced access to long-term debt, Suggesting the availability of alternative financing channels and the tightening of the lending standards under the on-going banking reform. The combination of ownership structures and institutions explains up to 6% of the total variation in firms' leverage decisions, while firm characteristics alone explain no more than 8% of the variation. Further, we show that non-state-owned firms tend to have lower total and short-term debt than their state-owned counterparts in less developed regions. Finally, we show that state-owned firms' easy access to long-term debt is positively associated with long-term investment and negatively associated with firm performance. Journal of Comparative Economics 37 (3) (2009) 471-490. Sauder School of Business, University of British Columbia, 2053 Main Mall, Vancouver, Canada BC V6T IZ2; Guanghua School of Management, Peking University, Beijing 100871, PR China. (C) 2009 Association for Comparative Economic Studies. Published by Elsevier Inc. All rights reserved.