How dynamic capital structure works in China?

Abstract

We analyze the capital structure decision for 615 Chinese listed firms covering a period from 2008 to 2013. We posit that capital structure decisions are inherently dynamic. We apply both the book total debt and market total debt to formula dynamic capital structure models. Using a system GMM estimator we find: (i) firms adjust deviations from an optimal targets with the different speeds for book and market debts; (ii) total debt leverage has changed in downward trend; (3) firm size and non-debt tax shield have become the most important determinants of debt leverage; (4) dividend is not used for tunnel cash from debt-holders to shareholders; (5) human recourse factors emerged with significant influence on capital structure decision. This extension allows us to establish new evidence of determinants of capital structure from a human source perspective