Ultimate Ownership and Adjustment Speed Toward Target Capital Structures: Evidence from China

We investigate whether ultimate ownership affects firms’ adjustment speed toward target capital structures for Chinese publicly listed companies over the period 1999–2009. We divide our sample into state-owned enterprises (SOEs) and non-SOEs according to their ultimate ownership. We find that SOEs have higher leverage ratios and slower adjustment speeds toward target capital structures. Our results are consistent with the trade-off theory, implying that the political resources of SOEs can lead to a higher persistence and slower leverage adjustment speeds in comparison to non-SOEs. Finally, our results also raise a question: Why do Chinese companies adjust their capital structure so fast?