Mirza, Sultan Sikandar and ur Rehman, Ajid and Zhang, XianZhi
(2016)
Adjustment Behaviour Of Leverage In Chinese
Firms: An Empirical Analysis Of Overall Firms,
State-Owned And Non State-Owned Enterprises.
Asian Academy of Management Journal of Accounting and Finance, 12 (2).
pp. 1-32.
ISSN 1823-4992
Abstract
This study investigates the adjustment behaviour and adjustment speed of Chinese frms
with regards to capital structure. For this purpose, the study utilises an extensive set of data
of 867 A-Listed non-fnancial Chinese frms over ten years from 2003 to 2012. This study
adds useful insights on adjustment behaviour and speed of Chinese frms with regards to
frm-specifc and country level determinants of leverage policy. To fnd out the adjustment
speed, the study uses multiple generalised method of moments (GMM) for the purpose
of robustness. Both of the GMMs report positive and their adjustment coefcients are
statistically signifcant which implies that Chinese frms follow a target level of leverage by
adjusting their current leverage policy. Chinese frms take almost 3.5 years for adjustment.
The analysis is extrapolated to state owned enterprises (SOEs) and non-state owned
enterprises (NSOEs) and it is found that SOEs take longer time to adjust to their leverage
policy as compared to NSOEs. The results are consistent for both Arellano Bond (GMM1)
and Blundell and Bond (GMM2) dynamic panel data models.
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