Leverage, Profitability and the Ownership Structures of Listed Firms in China

28 Pages Posted: 27 Aug 2007

Date Written: August 2007

Abstract

The relationship between leverage, profitability and a firm's ownership structure in China is investigated in this paper. It is an exploratory study based on all firms listed on the Shanghai and Shenzhen stock exchanges from 1999 to 2005. The results of the empirical analysis are reported in this paper.

The most significant result is that foreign holdings are found to have a significant relationship with the leverage of listed firms in China. Whereas, somewhat unexpectedly, institutional ownership, through legal person holding companies, state ownership and private holdings are not found to have a significant relationship with the capital structure choices of firms in China. The results also suggest that some firm-specific factors that are relevant for explaining firm leverage generally referred to in studies in developed economies, such as profitability, growth opportunities, size and tax shields, are also relevant in China. The age of the firms and the industry to which they principally belong also has significant bearing. Yet direct government grants and the use of an internationally renowned auditing firm do not show a significant relationship.

Keywords: State-owned enterprises, Ownership structures, Capital Structure, Emerging markets, China

JEL Classification: P31, L33, G32, G38, O53

Suggested Citation

Hovey, Martin T., Leverage, Profitability and the Ownership Structures of Listed Firms in China (August 2007). 20th Australasian Finance & Banking Conference 2007 Paper, Available at SSRN: https://ssrn.com/abstract=1009432 or http://dx.doi.org/10.2139/ssrn.1009432

Martin T. Hovey (Contact Author)

UNE Business School ( email )

TRAVENA ROAD
Armidale, NSW 2351
Australia

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