Abstract
This study explored the determinants of the capital structure in selected Chinese industries for a period of seven years (from 2011- 2016). Using the ex-post facto design, secondary data was collected from the Chinese Stock Exchange (CSE), seven determinants of capital structure were analyzed. These determinants are growth opportunities, size, profitability, and tangibility and non-debt tax shields, ownership structure and sales revenue. The Trade-off theory and Pecking Order theory were employed as the theoretical anchorage of the study. Panel data was used to construct the model with accompanying descriptive statistics such as means and standard deviation and inferential statistics such as Correlation matrix, F-test, Hausman test, LM test, two-stage least squares (2SLS) and General Method of Moments (GMM) to establish endogeneity. Empirical results from the study showed that the growth opportunities generally had direct influence on short-term debt levels and inverse correlation with total debt ratio and long-term debt ratio which pre-empts that all leverage measures are not same and would have a dissimilar and unique impact on the explanatory variables. Same relation was observed for all the variables especially - volatility of earnings, non-debt tax shield and ownership structure in terms of association and effect. The regression results showed that company size and capital structure are directly correlated while volatility of earnings and capital structure are inversely related. Keywords: Capital Structure, Trade off theory, Pecking Order Theory DOI : 10.7176/EJBM/11-8-02 Publication date :March 31 st 2019
Highlights
Financing decision represents a fundamental issue in the management of any firm
The results revealed a negative relationship between earnings volatility, growth of firm, profitability and leverage on one hand, a positive relationship was established between firm size, non-tax shield, tangibility of assets and leverage on the other hand
The results indicated that the return on asset, size, asset tangibility, growth rate of banks and inflation rates are statistically significant in determining the capital structure of banks in Sub-Sahara Africa
Summary
Financing decision represents a fundamental issue in the management of any firm. This is because every business entity just like any organization or institution requires funds for startup, operation and continuous development. The term capital structure describes how a firm finances its overall operations and growth by using different sources of funds – debt and/or equity. It refers to the proportion or percentage of capital (money) at work in a business by type. This capital at work in a business encompasses a mix of a company's specific short-term debt, long-term debt, common equity and preferred equity among others
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