Determinants of Financial Sustainability in Chinese Firms: A Quantile Regression Approach

Li Zhao, Zhengqiao Liu, Thi Huong Giang Vuong, Huu Manh Nguyen, Florin Radu, Alina Iuliana Tăbîrcă and Yang-Che Wu
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Li Zhao: Department of Accounting, Business School, Yango University, Fuzhou 350015, China
Zhengqiao Liu: Digital Industry Research Institute of Digital Economy Academy, Yango University, Fuzhou 350015, China
Thi Huong Giang Vuong: Department of Finance, Banking University of Ho Chi Minh, Ho Chi Minh 70000, Vietnam
Huu Manh Nguyen: Department of Accounting and Finance, Nha Trang University, Nha Trang 57000, Vietnam
Florin Radu: Faculty of Economics, Valahia University of Targoviste, Str. Aleea Sinaia, nr. 13, 130024 Targoviste, Romania
Alina Iuliana Tăbîrcă: Faculty of Economics, Valahia University of Targoviste, Str. Aleea Sinaia, nr. 13, 130024 Targoviste, Romania
Yang-Che Wu: Department of Finance, College of Finance, Feng Chia University, Taichung City 40724, Taiwan

Sustainability, 2022, vol. 14, issue 3, 1-18

Abstract: Our research investigates the connection between firm characteristics and leverage based on a sample of firms listed in the Chinese Stock Index 300. We aim to examine the sustainability of the financial structure of Chinese enterprises covering the period 2010–2019. We employ a conditional quantile regression that discloses the behavior of regressions across the leverage distribution and compares its results for different leverage levels with those achieved by the linear regression model. The results confirm the effects of the determinants of capital structure change since the quantile of leverage varies. We find that both the trade-off theory (TOT) and the pecking order theory (POT) confirm the validity of Chinese firms’ financing decisions at different quantiles of leverage. Specifically, the empirical results support the POT more over the TOT at higher levels of the quantile. Furthermore, the relationship between firm size and leverage strongly switches to support the POT at the highest quantile. All empirical results are obtained from quantile regression, consistent with the prediction for an increase in asymmetric information of the POT when Chinese firms employ more debt in their capital structure.

Keywords: financial sustainability; quantile regression; capital structure; financial determinants; pecking order theory; trade-off theory (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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