Does ownership structure affect the optimal capital structure? A PSTR model for China

Abstract

AbstractIn the context of Chinese enterprises' privatization reforms, the relationships between ownership structure and optimal capital structure and between ownership structure and firm performance are worth attention. Using data on listed companies in China, this article uses the panel smooth transfer regression (PSTR) model and multiple regression models to test the nonlinear relationship between capital structure and firm performance. The optimal capital structure is calculated using the partial correlation function of the PSTR model, and the ownership structure–optimal capital structure relationship is analysed. This research found that (a) the effect of the debt‐to‐asset ratio on firm performance shows a nonlinear relationship with sudden changes in characteristics, and a debt‐to‐asset ratio interval exists that can significantly improve firm performance; (b) under the premise of the effect of ownership checks and balances, an increase in ownership concentration can improve the optimal capital structure; thus, enterprises can achieve effective operations with higher debt; (c) the promotion effect of ownership concentration on firm performance varies depending on a company's debt‐to‐asset ratio; and (d) different industries have different optimal capital structures. The raw materials industry has a high optimal capital structure. A series of robustness tests verify the robustness of these conclusions. This research enriches the theoretical interpretation of the optimal capital structure and provides new insights into the relationship between ownership structure and firm performance. The conclusions drawn by this article are helpful to enterprises making corresponding financial decisions and the government in formulating corresponding capital market systems.