Determinants of Capital Structure of Firms in Pre-Post Financial Crisis: Evidence from China

Abstract

This paper examines the impact of the global financial crisis of 2007-08 on 897 Chinese listed non-financial firms by examining changes in their capital structure from 2003 to 2012. Panel data technique has been used and it is found that there is noticeable change on both firm level and macroeconomic level determinants of the capital structure after the financial crisis. Regression analysis has provided very significant results. In full period regression, liquidity has shown no change in both pre-post financial crisis time periods, while tax, non-debt tax shield, tangibility, economic development and inflation have shown a very significant and distinct change after crisis.  But at the same time volatility has shown a very significant change in long term and in total leverage while profitability and size has shown significant change just in short term leverage after crisis. Growth potential has shown significant change only in total leverage after crisis. Analysis shows that pecking order theory has more explanations than static trade-off theory and market timing theory after the financial crisis for Chinese listed non-financial firms.

KEY WORDS: leverage; financial crisis; pecking order theory; capital structure; non-financial Chinese firms