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Financial integration and capital structure decisions of listed firms: evidence from China

Ahsan Ahmed (Department of Finance, Faculty of Business and Economics, University of Malaya, Kuala Lumpur, Malaysia)
Rozaimah Zainudin (Department of Finance, Faculty of Business and Economics, University of Malaya, Kuala Lumpur, Malaysia)
Shahrin Saaid Shaharuddin (Department of Finance, Faculty of Business and Economics, University of Malaya, Kuala Lumpur, Malaysia)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 23 June 2022

Issue publication date: 23 January 2024

166

Abstract

Purpose

This paper investigates the impact of financial integration on the capital structure of the firms operating in mainland China, examining the firm-level and country-level integrating variables for 2,878 listed Chinese firms over the period of 1991–2016 in regard to the firms' capital structures. Finally, the study revisits the associations for the state-owned and multinational firms in the context of China.

Design/methodology/approach

A large sample of unbalanced data from firms were used to explore the relationship firm-level and country-level integrating variables has with firm leverage and maturity; this is accomplished using the fixed effect model. For robustness, a system-generalised method of moments was used.

Findings

The results indicate that internationalisation positively impacts the leverage and debt maturity of all listed Chinese firms and multinational firms and that state-owned firms are financed mainly by the state. For country-level integration, the authors find that credit and equity markets are negatively related to a firm's leverage. A negative relation with credit markets suggests that Chinese firms have much cheaper financing options than the benefits that arise from credit market integration. Moreover, the effect of equity market integration is more pronounced on Chinese firms' capital structure and debt maturity than credit market integration.

Practical implications

The results provide valuable implications of financial integration for policymakers as well as capital structure decision-making for managers in China.

Originality/value

Few studies have examined the impact of integration on firms' capital structures in developing countries. After controlling for unobserved heterogeneity and endogeneity, this study adds new multilevel integration evidence on the capital structure of Chinese firms.

Keywords

Acknowledgements

The authors are grateful to Editor-in-chief Prof Ilan Alon and anonymous reviewers for their valuable comments and constructive suggestions.

Citation

Ahmed, A., Zainudin, R. and Shaharuddin, S.S. (2024), "Financial integration and capital structure decisions of listed firms: evidence from China", International Journal of Emerging Markets, Vol. 19 No. 2, pp. 435-455. https://doi.org/10.1108/IJOEM-05-2021-0757

Publisher

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Emerald Publishing Limited

Copyright © 2022, Emerald Publishing Limited

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