Institutional logics and corporate finance in China

Purpose – The paper aims to identify the relationship between institutional logics and corporate finance in the context of China. It models the institutional logics and outlines why and how they impact the capital structure. The study aims to expand the domain of corporate finance by introducing the institutional effects. Design/methodology/approach – The paper employs the ownership and region to proxy institutional logics, and a time dummy for their evolution and tests how they shape firms' capital structure through panel data regression. Findings – The paper finds that capital structures in firms dominated by state logic are less heterogeneous but the heterogeneities of all firms' increase over time and the capital structures in firms dominated by state logic deviate more from the optimality but those of all firms approach the optimality as time goes by. I also document that the institutional logics affect the corporate financing decisions through the selection of chief executive officers (CEOs). Research limitations/implications – The paper demonstrates how state and market institutions are embodied in firms and how their evolution requires firms to adapt, and it proposes a brand-new insight into the marketization process of China. Practical implications – The paper finds that the firms are unable to acquire optimal capital structure because of the institutional pressure and derive some implications on managerial practice of Chinese firms. Originality/value – The paper analyses and examines the impacts of the institutional logics on corporate financing decisions as well as the potential channel, enhancing the understanding of the institutions and firms' responses.