Incorporates: Journal of Management History (Archive)
Online from: 1967
Subject Area: Accounting and Finance
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|Title:||Ownership structure, corporate diversification and capital structure: Evidence from China's publicly listed firms|
|Author(s):||Larry D. Su, (School of Business, University of Greenwich, London, UK)|
|Citation:||Larry D. Su, (2010) "Ownership structure, corporate diversification and capital structure: Evidence from China's publicly listed firms", Management Decision, Vol. 48 Iss: 2, pp.314 - 339|
|Keywords:||China, Corporate finances, Corporate governance, Corporate ownership, Corporate strategy, Public sector organizations|
|Article type:||Research paper|
|DOI:||10.1108/00251741011022644 (Permanent URL)|
|Publisher:||Emerald Group Publishing Limited|
Purpose – The purpose of this paper is to investigate whether, and to what extent, corporate diversification into related and unrelated businesses affects capital structure choices, and whether ownership structure is germane to the understanding of corporate diversification strategies and debt-equity financing choices.
Design/methodology/approach – Univariate approaches include the parametric two-sample
Findings – Corporate diversification into related or unrelated industries has opposite effects on capital structure, after controlling for ownership structure and corporate governance mechanisms. Consistent with the prediction of organizational economics, an increase in the degree of business relatedness is associated with a reduction in debt while an increase in business unrelatedness is associated with an increase in debt. In addition, there is strong evidence that government-controlled firms use less debt financing and that government ownership weakens the positive relationship between unrelated diversification and leverage. The results are robust to different measures of capital structure.
Originality/value – Traditional finance literature has not been able to provide conclusive evidence on what affects corporate capital structure decisions. This paper shows that a corporate strategy perspective, with its emphasis on a managerial decision-making process, can provide a behavioral basis for understanding capital structure choices.
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