The Dynamic Adjustment of Firms' Capital Structure in China

Abstract

By using a dynamic adjustment model, this paper examines the dynamic adjustment for capital structure of public firms in China. The results show that, the capital structure of Chinese public firms is adjusted dynamically. The public firms in China are systemically under-leveraged with high adjustment costs. The main reason can be attributed to the imperfect capital market. Therefore, some efforts, such as completing the laws and accelerating the development of capital market, should be made to improve the optimization of public firms' capital structure.