Capital Structure Choice in a Nascent Market: Evidence from Listed Firms in China


  • We thank the editor, two anonymous referees, Sheridan Titman, Alex Triantis, and seminar participants at Concordia University, University of Connecticut, Copenhagen Business School, University of Melbourne, Post-Keynesian Study Group, and the Financial Management Association 2002 Meetings for many helpful suggestions. We thank Wei Shao, Yuzhi Wang, and Yong Chen for their excellent research assistance, especially for their help in manually collecting data from Chinese documents. Any remaining errors are our own.


We study the capital structure decisions of listed firms in China between 1992 and 2001. The Chinese market exhibits high information asymmetry, phenomenal growth, highly concentrated ownership, and a lack of external market for corporate control. We find that Chinese firms use little long-term debt, which is positively (negatively) related to firm size and tangibility (profitability and growth options). These results are robust to the degree of seasoning after the initial public offering and private versus State ownership. Although industry membership is important, the development and growth of the stock market did not affect the long-term debt ratios over the years.