Regional variation in the capital structure adjustment speed of listed firms: Evidence from China |
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Institution: | 1. Victoria University of Wellington, School of Economics and Finance, PO Box 600, Wellington 6140, New Zealand;2. Victoria University of Wellington, School of Economics and Finance, New Zealand;1. Faculty of Economics and Business, Monash University, Australia;2. UNSW School of Business, University of New South Wales, Australia;3. Sun Yat-sen Business School (SYSBS), Sun Yat-sen University, China;1. School of Management, Xi’an Jiaotong University, 710049, China;2. UQ Business School, The University of Queensland, QLD 4072, Australia |
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Abstract: | This paper investigates whether in China, a country large in size, geographically diverse and imbalanced in regional economic development, variation in firm capital structure1 is systematically related to regional economic environment. In addition, we examine whether during macroeconomic recovery there is significant difference in the speed of adjustment in capital structure of firms located in different regions. The empirical analyses are based on 783 firms listed on Shanghai and Shenzhen Stock Exchanges during a sample period of year 2000 through 2014. Using GMM and Logit QMLE, we found strong evidence that the regional variation in the capital structure of listed firms is linked to growth indicator (the Market-to-Book value, MB), EBIT ratio, size of the firm and tangible assets (the value of Net Property, Plant and Equipment, PPE). In the process of economic recovery, there was apparent regional variation in the speed of adjustment in capital structure, i.e. the fastest adjustment in capital structure was found in East China while that of West China followed and that of Mid China the slowest, that is to say within a given period the leverage ratio of listed firms in East China rises or falls faster than in the other two regions. |
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Keywords: | Listed firms Capital structure Speed of adjustment Regional variation |
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