Ownership Structures and the Leverage of Listed Firms in China

In this paper the relationship between leverage, performance and a firm’s ownership structure is investigated. It is an exploratory study based on listed firms in China, that is all firms listed on the Shanghai and Shenzhen stock exchanges from 1999 to 2005. The results of an empirical analysis of ownership structures and the leverage are reported in this paper. The most significant result is that foreign holdings are found to have a significant relationship with the leverage of listed firms in China. Whereas, somewhat unexpectedly, institutional ownership, through Legal Person holding companies, state ownership and private holdings are not found to have a significant relationship with the capital structure choices of firms in China. The results also suggest that some firm-specific factors that are relevant for explaining firm leverage generally referred to in studies in developed economies, such as profitability, growth opportunities, size and tax shields, are also relevant in China. The age of the firms and the industry to which they principally belong also has significant bearing. Yet direct government grants and the use of an internationally renowned auditing firm do not show a significant relationship.