Ultimate ownership, institutionality, and capital structure: Empirical analyses of Chinese data
Abstract
Purpose
The purpose of this paper is to illustrate and examine the effects of ultimate ownership, institutionality and their interactions on capital structure in a unified framework, based on evidence from China.
Design/methodology/approach
Using six years of panel data of Chinese non-financial listed firms between 2004 and 2009, this paper estimates with correlation analysis and multiple regression analysis.
Findings
This paper finds that debt financing facilitates the ultimate owner's expropriation behavior. The separation of control rights and cash flow rights is positively related to capital structure, while cash flow rights negatively affect it. Compared with private ultimate owners, state ultimate owners have less incentive to reap the benefits of expropriation, implying that the separation of control rights and cash flow rights has a smaller effect on the capital structure of state-owned firms. The improvement of institutionality can restrain ultimate owners' expropriation behavior, and regional institutional development is negatively related to capital structure. The separation of control rights and cash flow rights has a smaller positive effect on capital structure in regions with better-developed institutionality.
Originality/value
This paper incorporates ultimate ownership and institutionality into a unified analytical framework of capital structure. It not only enriches related studies on capital structure, but also helps us understand the institutional roots of irrational capital structure behaviors in China. This paper also provides further evidence on ultimate owners' expropriation of minority shareholders through debt financing.
Keywords
Acknowledgements
This study is supported by National Natural Science Foundation of China (71102095), the Development Fund of Social Science and Management in Northwestern Polytechnical University (RW201203) and the Research Start-up Project of Northwestern Polytechnical University (11GH0313). The authors appreciate the helpful suggestions from the Editor-in-Chief, Check-Teck Foo.
Citation
Su, K., Wan, R. and Li, B. (2013), "Ultimate ownership, institutionality, and capital structure: Empirical analyses of Chinese data", Chinese Management Studies, Vol. 7 No. 4, pp. 557-571. https://doi.org/10.1108/CMS-09-2013-0175
Publisher
:Emerald Group Publishing Limited
Copyright © 2013, Emerald Group Publishing Limited