Abstract
AbstractThis study investigates the financing behavior of Chinese firms in tranquil and crisis situation over the period 2002–2014. We divide the sample into three sub-periods; pre-crisis, during-crisis, and post-crisis. The results indicate some noteworthy findings as this study incorporates firm and country-level factors. We find that the firms’ financing choice depends on the market conditions. The results show that Chinese firms have significantly decreased their dependence on leverage after the eruption of global financial crisis. Furthermore, we find that financial crisis of 2007–2008 has significantly affected the explanatory power of all factors. Moreover, profitability, size, and liquidity are important factors determining capital structure of the firm in financial crisis period.
Highlights
Firms have to make vital investment decisions and capital structure choices to achieve their main objective through value maximization
The noteworthy findings suggest that the association of tangibility is significant negative with short-term and total debt, while positive with long-term debt
We considered nine firm-level determinants named; agency cost, non-debt tax shield, tax shield, tangibility, liquidity, growth potential, profitability, volatility, firm size; and two country-level determinants; inflation and economic development
Summary
Firms have to make vital investment decisions and capital structure choices to achieve their main objective through value maximization. Every firm has to make a very careful financial choice between issuing stock and getting debt. Sultan Sikandar Mirza is an assistant professor in Zhejiang Gongsheng University, Hangzhou, China. His research interests include Financial markets, Capital Structure, and Corporate Governance. Khalil Jebran is a PhD Candidate in School of Accounting, Dongbei University of Finance and Economics, Dalian, China. His research interests include Financial Markets, Foreign Exchange Markets, Behavioral Finance, Capital structure and Corporate Governance. His research has been published in different international journals
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