The capital structure of Chinese listed firms: is manufacturing industry special?

Abstract

Purpose – The purpose of this paper is to examine whether or not industry membership can explain the leverage of Shanghai listed firms prior to the 2007 financial crisis. In view of the central role that manufacturing industry played in China's rise as a global economic power, the authors are particularly interested in whether or not manufacturing is a special case. Design/methodology/approach – The paper undertakes a comparative study of leverage differences between manufacturing and non-manufacturing industry firms on both a cross-section and time-series basis. This is supplemented by a pooled regression analysis that models the factors determining leverage on an industry-by-industry basis. Findings – The authors find that leverage levels differ across industries because of industry-based differences in financial characteristics. It is also found that, despite playing a leading role in China's economic development, there is no evidence to suggest that manufacturing is a special case. Across all sectors borrowing-power-related variables were identified as being important determinants of leverage and, contrary to the expectations, factors relating to profitability were largely insignificant. Research limitations/implications – The trade off and pecking order capital structure theories found to be commonly applicable to firms in the western business environment do not appear to adequately explain capital structure in China. Originality/value – The paper identify evidence to suggest that China needs to be treated as a “special case” in the context of capital structure theory due to the unique cultural and business environment.

Capital Structure Determinant and Profitability and Their Impact on Firm Value: Study in Indonesian Manufacturing Sector

“…This is in line with a study by (Chen et al, 2014;Cheng & Tzeng, 2011;Lemma & Negash, 2013;Taghavi et al, 2013;Thi Hang & Jay Hung, 2016;Yang et al, 2010). However, it is different from a study by (Chandra, 2015;Fauzi et al, 2013;Chandra et al, 2019;Tse & Rodgers, 2014). H1: Firm size influenced capital structure in the Indonesia manufacturing sector.…”

“…This condition describes that the collected result is contrary to the trade-off theory. This result is in line with the studies by (Chen et al, 2014;Gwatidzo et al, 2016) but it is different from the studies by (Lemma & Negash, 2013;Taghavi et al, 2013;Titman & Wessels, 1988;Chandra et al, 2019;Tse & Rodgers, 2014;Yang et al, 2010).…”

“…This condition indicates a good company's prospect in the future. This study is supported by a study by (Al Ani & Al Amri, 2015;Tse & Rodgers, 2014). In contrast, (Myers & Majluf, 1984), in Pecking Order Theory, where a company that can produce a profit prefers using funding from the company's internal sources beside using funding from the company's external sources (liability).…”

“…Meanwhile, a study by (Thi Hang & Jay Hung, 2016) found that volatility negatively and significantly influenced capital structure. Other studies by (Lemma & Negash, 2013;Taghavi et al, 2013;Titman & Wessels, 1988;Chandra et al, 2019;Tse & Rodgers, 2014;Yang et al, 2010) stated that volatility did not significantly influence capital structure. H2: Volatility influenced capital structure in the Indonesia manufacturing sector.…”

Capital Structure Determinants in Family Firms: An Empirical Analysis in Context of Crisis

“…We consider only firms operating in manufacturing industry because: a) they represent about 40% of medium Italian firms (ISTAT, 2011); b) companies in this sector have a capital structure that differs from other sectors (Kӧksal & Orman, 2015;Romano et al, 2000;Tse & Rodgers, 2014) and c) firms of the same industry are more similar according to their capital structure (Romano et al, 2000). The above criteria provide a sample of 1,841 firms.…”