Institutional Ownership, Capital Structure and Performance of SMEs in China

Geeta Duppati, Rachita Gulati, Neha Matlani and Ploypailin Kijkasiwat

South Asian Journal of Macroeconomics and Public Finance, 2023, vol. 12, issue 2, 135-159

Abstract: This article examines the relationship between ownership, leverage, and performance for Chinese small and medium enterprises (SMEs). Our study sheds light on how institutional ownership affects the performance of Chinese SMEs. We use agency and the pecking order perspective as background theories for analysing the relationships between institutional ownership, capital structure, and firm performance. We use a range of regression estimations for robustness checks and include Quantile regression, static and dynamic panel regression models, and a two-step system Generalized Method of Moments (GMM) approach to explore data covering 2009–2015. Our findings show that institutional investor’s ownership affects the performance of Chinese SMEs positively and significantly. The negative relationship between leverage and performance indicates the dominance of family ownership in Chinese SMEs, where firms rely more on retained earnings for financing, which aligns with the pecking order theory (POT) perspective. The results also suggest that institutional ownership could mitigate agency issues in Chinese SMEs. JEL Classification: G30, G38, G39

Keywords: Institutional ownership; capital structure; Chinese SMEs; firm performance (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:sae:smppub:v:12:y:2023:i:2:p:135-159

DOI: 10.1177/22779787231196361

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