The Effect of Ownership Structure on Leverage Decision : New Evidence from Chinese Listed Firms

This paper examines the effect of state control and ownership structure on leverage decision of firms listed in Chinese stock market. Our results show that state-owned enterprises (SOEs) have higher leverage ratios than non-SOEs, and SOEs in regions with a poorer institutional environment have higher leverage ratios than SOEs in better regions. We also show that the largest shareholding (percentage of shares held by the large shareholder) in the SOEs has a negative relationship with the leverage ratio, while largest shareholding in Non-SOEs has a non-linear relationship with short-term and long-term debt ratio. Finally, this study also shows that share split reform and the improvement of institutional environment both weaken the negative relationship and strengthens the positive relationship between largest shareholding and leverage of SOEs and Non-SOEs to some extent. This paper documents how the financing behaviour of SOEs is more influenced by government intervention, while the financing behaviour of non-SOEs is more market oriented