Journal of Business and Management

Journal of Business and Management

ISSN: 2291-1995 (Print)    ISSN: 2291-2002 (Online)

Volume 7 (2018), No. 1, Pages 1-19

DOI: 10.12735/jbm.v7n1p1

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Capital Structure and Foreign Ownership: Evidence from China

Agyapomaa Gyeke-Dako1 

1Department of Finance, Business School, University of Ghana, Ghana


To Cite this Article     Article Views: 720     Downloads: 566  Since deposited on 2018-03-21


This study provides fresh evidence on how sensitive long and short-term debts are to their financial determinants, looking at firms with different degrees of foreign ownership. Specifically, the study divides ownership into three groups, Purely Domestic, Joint Ventures and Wholly Foreign Firms and compares how their respective long-term debt and short-term debts respond to changes in their financial determinants. Wholly Foreign Firms and Joint Ventures are presumed to be more efficient and have a larger pool of cash flow compared to Purely Domestic Firms. In addition, firms with some degree of foreign ownership are presumed to be more endowed with tangible assets than firms without any degree of foreign ownership. Differences in these endowments are expected to reflect in the debt maturity choices of the different types of firms. Using ORIANA Dataset covering the period 2000-2008 on over 20,000 Chinese firms and the GMM technique, this study finds that while wholly-foreign firms and joint ventures’ short-term debt respond less to changes in cash flow compared to domestic firms’, there is no difference between how wholly-foreign firms and joint ventures long-term debt respond to changes in cash flow. Contrary to our expectations, we find that an increase in collateral will allow foreign firms to increase their long-term debt much more than Joint Ventures and Purely Domestic Firms. The implication of these results is that China’s attempt to improve its financial system has not fully gained grounds.

JEL Classifications: G3

Keywords: ownership structure, capital structure, purely domestic, joint ventures, wholly foreign firms

To Cite this Article: Gyeke-Dako, A. (2018). Capital structure and foreign ownership: Evidence from China. Journal of Business and Management, 7(1), 1-19.

Copyright © Agyapomaa Gyeke-Dako

Creative Commons License
This article is published under license to Science and Education Centre of North America. This is an Open Access article distributed under the terms of the Creative Commons Attribution 4.0 International License.

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Capital Structure and Foreign Ownership: Evidence from China