Government Ownership, Concentration, and the Capital Structure of firms: Empirical Analysis of an Institutional Context from China

Institutional context influences corporate financing behavior of firms and emerging economies provide an interesting scenario to investigate this phenomenon. Therefore, in this study, we focus on the capital structure decision of Chinese listed firms which continues to have government as a significant shareholder. We choose the sample period after the Split-Share Reform so that we can distinguish the impact of ownership concentration from government ownership by creating a group of non-government-concentrated firms and a group of government-concentrated firms. For the former group, we find non-government concentration positively influences all leverage ratios, while government ownership has no impact. For the latter group, we find government ownership positively influences all leverage ratios. But for short-term debt and total debt, this positive impact turns negative when the firms are dominantly owned by government. The results suggests the changing role of government ownership in capital structure.