The relationship between product market competition and capital structure in Chinese listed firms

Yilmaz Guney, Ling Li and Richard Fairchild

International Review of Financial Analysis, 2011, vol. 20, issue 1, 41-51

Abstract: Financial and industrial economists have increasingly recognized the interaction between product market competition and financing decisions of firms. This paper analyzes the relationship between product market competition (measured by Tobin's Q) and the capital structure of Chinese listed firms in a static and dynamic setting. We study an unbalanced panel dataset of 10,416 firm-year observations in 12 industries from 1994 to 2006. Employing several empirical methods, this study finds that there are significant differences in the debt ratios and product market competition across different industries. Our results suggest that the relationship between leverage and product market competition is non-linear (parabolic or cubic), depending on industry type, company size and firms' growth opportunities. The system-GMM results reveal that Chinese firms tend to adjust their leverage ratios through time. Overall, the fixed effects and GMM estimates detect a linear and inverse relationship between the intensity of competition and leverage ratio, which supports the predation theory.

Keywords: Capital; structure; Product; market; competition; Chinese; firms; Endogeneity; System-GMM (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (36)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057-5219(10)00071-2
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:20:y:2011:i:1:p:41-51

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().