DETERMINANTS OF CAPITAL STRUCTURE: FURTHER EVIDENCE FROM CHINA
DETERMINANTS OF CAPITAL STRUCTURE: FURTHER EVIDENCE FROM CHINA

Summary/Abstract: This paper aims to provide empirical evidence for the relationship between a firm’s choice of capital structure and its productive environment using three basic hypotheses: efficiency risk, franchise value and political power. It considers the impact of a firm’s relative efficiency, market share and industry concentration on capital structure decisions. It uses non-parametric data envelopment analysis (DEA) to measure the relative efficiency. We found evidence to support the franchise value hypothesis that predicted a negative relationship between leverage and the firms’ relative efficiency. It is also found relatively large firms in the industry tend to use a lower level of leverage.

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