Capital Structure Determinants in Chinese Listed Firms: Replication and Tangibility Hypothesis Extension

Abstract

This study replicates and extends the work of Chen (2004) on the determinants of capital structure among Chinese listed firms by using a cross-sectional dataset of 200 A-share companies from 2002. Higher profitability that reduces leverage and growth potential that motivates debt financing is demonstrated by this investigation, replicating the key findings of the earlier work. The study advances its examination of institutional impacts on capital decisions by comparing SOE and non-SOE accounts, showing that ownership determines how firms behave in relation to risks when making capital choices. In addition, the research introduces a new hypothesis: More tangibility of assets within companies tends to see that they have high levels of use of long-term debt because of the ability to use collateral. The results prove this hypothesis quite effective, as asset tangibility drives long-term debt but does not have a significant impact on overall leverage. These results display how institutional factors still form an essential element of the financial strategy formulation process and the necessity of tailoring capital structure theory for particular market contexts.