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Leverage and Capital Structure Determinants of Chinese Listed Companies

Benno Ferrarini (), Marthe Hinojales () and Pasquale Scaramozzino
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Benno Ferrarini: Asian Development Bank
Marthe Hinojales: Asian Development Bank

No 509, ADB Economics Working Paper Series from Asian Development Bank

Abstract: Total debt in the People’s Republic of China has increased significantly in recent years, mostly on account of nonfinancial corporate debt. Earning and the financial performance of corporate firms have weakened, and so has the asset quality of the financial sector. This paper assesses the financial fragility of the Chinese economy by looking at risk factors in the nonfinancial sector. We apply quantile regressions to a rich dataset of Chinese listed companies contained in Standard & Poor’s IQ Capital database. We find higher sensitivity over time of corporate leverage to some of its key determinants, particularly for firms at the upper margin of the distribution. In particular, profitability increasingly acts as a curb on corporate leverage. At a time of falling profitability across the Chinese nonfinancial corporate sector, this eases the brake on leverage and may contribute to its continuing increase.

Keywords: corporate debt; debt sustainability; panel quantile regression; People’s Republic of China (search for similar items in EconPapers)
JEL-codes: G01 G21 H30 H60 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2017-01-26
New Economics Papers: this item is included in nep-cfn, nep-cna, nep-rmg and nep-tra
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