Determinants of Capital Structure: A Comparison between Industrial and Consumer Sectors in China

2016 
Manuscript type: Research paperResearch aims: This paper examines the effects of firm’s financial,macroeconomic, and human resource variables in determining thecapital structure decisions of firms in the industrial and consumersectors of China. It also examines the differences between the totaldebt and long term debt of these two sectors.Design/ Methodology/ Approach: This study analyses data fromChinese A-share firms of the consumer and industrial sectors listedin the Shanghai and Shenzen stock market exchange from the year2008 to 2013. Dynamic panel data and the system GeneralizedMethod of the Moments (system GMM) were employed to examinethe speed of adjustment and the relationship between firm’sfinancial, macroeconomic, and human resource variables with twoproxies of capital structure namely: total debt and long term debt.Research findings: The results indicate that the adjustment speedof capital structure decision, for both the total debt and long termdebt are faster in consumer firms than they are in industrial firms.The long term debt of industrial firms is insignificantly influencedby the firm’s financial variables except for firm’s size. In consumerfirms, it is noted that firm’s financial variables play an important rolein explaining the leverage variations. The results also indicate thatmacroeconomic factors are not significant determinants of capital structure decisions, especially for industrial firms. In addition,employment size and employment in industry have significantpositive impact on total debt in consumer firms while employmentsize and employment productivity have a negative influence onthe long term debt in industrial firms. Lastly, there is a significantdifference between consumer firms and industrial firms, in term ofthe type of debt they carry.Theoretical contributions/ Originality: This study expands onprevious work done on indirect effects of sectorial and industrylevel factors on the relationship between leverage and firm’s specificdeterminants of capital structure, in developing economies. Itextends the applicability of capital structure theories that are highlydependent on the types of leverage despite sector behavioural issues.Practitioner/ Policy implications: This paper provides insightson the variables which explain the level and types of leverage ofChinese firms in both the consumer and industrial sectors.Research limitations/ Implications: Future studies should considerother proxies for capital structures such as market value of total,long and short term debts. Future studies should also investigatefirms in other sectors.Keyword: Adjustment Speed, China, Consumer Firms, DynamicCapital Structure, Industrial FirmsJEL: G00, G32, G39
    • Correction
    • Source
    • Cite
    • Save
    • Machine Reading By IdeaReader
    0
    References
    2
    Citations
    NaN
    KQI
    []