Split-share reforms and capital structure adjustment in China: a dynamic panel fractional estimation

摘要

Purpose - The purpose of this study is to explain the adjustment rate toward the target capital structure of Chinese nonfinancial listed firms and to investigate the impacts of the split-share reforms (2005-2006) on the capital structure adjustment rate. Design/methodology/approach - The authors control for the unobserved heterogeneity and the fractional nature of the adjustment rate by applying an unbiased dynamic panel fractional estimator on the unbalanced panel data of 27,545 firm-year observations of Chinese nonfinancial firms listed during 1998-2015. Findings - The authors find that Chinese firms adjust at an annual rate of 19-27% to reach their capital structure targets. The authors also find a positive impact of the split-share reforms on the adjustment rates of Chinese nonfinancial firms toward their target capital structure. Split-share reforms also helped Chinese firms to increase the use of equity financing in their capital structure. Practical implications - The authors argue that the government should strengthen capital markets to enable easy access to more financing options so that Chinese firms can acquire cheaper external financing. Originality/value - To the best of authors' knowledge, this is the first study that applies an unbiased dynamic panel fractional estimator on an extended data set of 27,545 firm-year observations of Chinese nonfinancial firms listed during 1998-2015.