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DETERMINANTS OF CAPITAL STRUCTURE: FURTHER EVIDENCE FROM CHINA

DETERMINANTS OF CAPITAL STRUCTURE: FURTHER EVIDENCE FROM CHINA This paper aims to provide empirical evidence for the relationship between a firm’s choice of capital structure and its productive environment using three basic hypotheses: efficiency risk, franchise value and political power. It considers the impact of a firm’s relative efficiency, market share and industry concentration on capital structure decisions. It uses non-parametric data envelopment analysis (DEA) to measure the relative efficiency. We found evidence to support the franchise value hypothesis that predicted a negative relationship between leverage and the firms’ relative efficiency. It is also found relatively large firms in the industry tend to use a lower level of leverage. JEL: G14, G31, G32 Keywords: capital structure, relative efficiency, market structure, China, DEA http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Economics, Management, and Financial Markets Addleton Academic Publishers

DETERMINANTS OF CAPITAL STRUCTURE: FURTHER EVIDENCE FROM CHINA

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Publisher
Addleton Academic Publishers
Copyright
© 2009 Addleton Academic Publishers
ISSN
1842-3191
eISSN
1938-212X
Publisher site
See Article on Publisher Site

Abstract

This paper aims to provide empirical evidence for the relationship between a firm’s choice of capital structure and its productive environment using three basic hypotheses: efficiency risk, franchise value and political power. It considers the impact of a firm’s relative efficiency, market share and industry concentration on capital structure decisions. It uses non-parametric data envelopment analysis (DEA) to measure the relative efficiency. We found evidence to support the franchise value hypothesis that predicted a negative relationship between leverage and the firms’ relative efficiency. It is also found relatively large firms in the industry tend to use a lower level of leverage. JEL: G14, G31, G32 Keywords: capital structure, relative efficiency, market structure, China, DEA

Journal

Economics, Management, and Financial MarketsAddleton Academic Publishers

Published: Jan 1, 2011

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