State Ownership-Capital Structure Nexus: Empirical Evidence from Chinese Listed Firms

Abstract

We study the determinants of capital structure, especially the effect of state ownership on corporate debt financing practices in Chinese listed firms from year 2003 to 2015. We employ quantile regression analysis as static model and system GMM as dynamic model to discover whether state ownership variations have significant impact on Chinese listed firms’ capital structure. Evidence shows that increase in state ownership can statistical significantly lead to reduction in firms’ total debt financing and short-term debt financing, but no statistical evidence supports the relationship between state ownership and reduction in long-term debt financing. Our research also found that smaller sized firms can significantly cut down debt financing if there is a boosting in state ownership in the previous period, however, larger firms are positively but statistically insignificantly affected by the variation in state ownership. Our finding suggests that Chinese listed firms, especially smaller firms are likely to reduce excessive short-term debt financing by employing state ownership even in sacrifice of private solvency, despite that state-owned enterprises (SOEs) may demonstrate healthier proportion of debt capital than non-SOEs.