Capital structure and firm performance: Evidence from listed companies in China

LI, QINYI (2022) Capital structure and firm performance: Evidence from listed companies in China. [Dissertation (University of Nottingham only)]

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The firm performance of capital institutions and corporations has been a matter of intense interest for researchers in finance. The economic market has witnessed sluggish global economic growth. China's economy has had to adapt by shifting from an investment-driven model to one driven by industrial upgrading and technological innovation. Consistent with the globalization of economic policy and financial markets, the profusion of investment and financing alternatives in the current economic climate is increasing the reliance of corporations on the capital markets. Capital is necessary to expand into new enterprises and for corporate growth. A company's performance is a direct reflection of its firm performance; consequently, a solid capital structure is essential to enhancing a company's performance and contributing to its sustainable growth.

After reviewing a vast quantity of literature, we discovered that numerous studies have primarily focused on examining factors affecting the capital structure and firm performance, etc. Few academics have directly researched the relationship between capital structure and firm performance, and much of the relevant literature has focused on a single industry, which may not be representative. The key features of this study are: 1. The selection of numerous industries, initially as a total and subsequently by industry, which is more compelling and representative. 2. Overcome the limitations of prior studies about indicator selection and using a multi-indicator performance evaluation method. Considering the impact of the share splitting reform and the COVID-19, the period chosen is 2007-2019, which is reasonable and commensurate with reality.

Capital structure theories have progressed through three stages of development: early theory, classical theory, and modern theory. Modern theory holds that capital structure will indirectly affect the firm performance of firms by directly influencing their market value. The purpose of this research is to study the relationship between capital structure and firm performance, using Chinese public corporations as an illustration. To undertake an empirical and quantitative analysis of these two factors, sample data for 3752 A-share companies listed on the Shanghai Stock Exchange and the Shenzhen Stock Exchange in China between 2007 and 2019 were acquired from the wind database. Following the concept of overall analysis before sub-sector analysis, descriptive statistics, correlation analysis, and the Hausman test were performed on the sample to determine if it was a random effect or fixed effect model to undertake benchmark regression analysis. Following the analysis of industry heterogeneity, a test of robustness was conducted. The empirical analysis revealed that all variables were highly significant, and that capital structure had a substantial impact on business success. “Debt to Equity Rate” was negatively related. This study is useful for establishing a reasonable capital structure to maximize firm performance and value, as well as for the creation of government policy.

Item Type: Dissertation (University of Nottingham only)
Keywords: Capital structure, firm performance, Debt to equity, Interest return on asset, Return on equity, Return on invested capital, Operating margin.
Depositing User: LI, Qinyi
Date Deposited: 06 Jul 2023 13:22
Last Modified: 06 Jul 2023 13:22

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