WU, JINGWEN
(2017)
Determinants of Capital Structure of IT Listed Firms: Comparative Evidence from China and India.
[Dissertation (University of Nottingham only)]
Abstract
ABSTRACT
Purpose – This thesis explores the firm-specific factors that impact the capital structures of IT listed companies in China and India during the ten- year period from 2006 to 2015 and make a comparison between China and India, and to examine whether the capital structure theories derived from western countries can provide much better explanations for the capital structure decisions of IT listed companies in China and India.
Methodology/approach – To achieve this goal, different classical theories about capital structures are reviewed, such as the Trade-Off model, the Pecking-Order theory, the Principal-Agency theory and the Free Cash Flow theory, for the sake of formulating testable propositions concerning the determinants of debt levels of IT service sectors in China and India. The work of the capital structure has emphasized on the Trade-Off model which indicates that companies finance their investment projects for tax benefits, while the Pecking-Order hypothesis suggests that firms should have a sequence of priority on gaining funds. I use the Pooled Ordinary Least Squares (Pooled OLS) and panel econometric techniques like Fixed Effects model and Random Effects model to investigate a sample of 52 and 176 IT companies listed on the Shenzhen Stock Exchange and Shanghai Stock Exchange and National Stock Exchange of India Ltd. (NSE) or Bombay Stock Exchange (BSE), respectively during the period between 2006 and 2015.
Findings – The results gained confirm that firm size, profitability and liquidity are negatively linked with leverage ratio both in China and India, whereas there is contradiction relationship between China and India. To illustrate, tangibility is positively linked to the total leverage ratio in Chinese IT listed companies, whereas a negative correlation exists in Indian IT listed companies. Growth opportunity is positively related to leverage ratio in Indian IT sectors as opposed to Chinese IT sectors in which growth opportunity does not show to be significantly linked to the total leverage ratio. And the consequences show that the Pecking-Order theory has received reasonable support about the financing decisions of Chinese and Indian IT listed firms, while there is weak explaining power for the Trade- Off model. That is to say, the classical capital structure theories derived from western countries have an explanatory power for understanding the financing decisions of IT companies in China and India.
Practice implications – This research to investigate the specific determinants of capital structure of Chinese and Indian IT companies upon which a more detailed description can be based. Additionally, these findings can help policymakers and managers in protecting the rights of investors and making optimal capital structure decisions.
Originality/value – This is a pilot project comparing determinants of capital structure in Chinese IT industry and Indian IT industry, which contributes to the recent debate, i.e., although China and India are the developing countries, there is still a subtle difference in their determinants of capital structures. This is an extension literature of the determinants of capital structures, however, it is the first comparative study examined for IT sectors between China and India.
Keywords Capital structure, China, India, IT listed companies
Paper type Research paper
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