Epistemology of capital structure decisions by building contractors in Hong Kong

Yat-Hung Chiang; Eddie W.L. Cheng; Patrick T.I. Lam

doi:10.1108/14714171011060105

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Construction Innovation: Information, Process, Management

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Epistemology of capital structure decisions by building contractors in Hong Kong

Document Information:
Title:	Epistemology of capital structure decisions by building contractors in Hong Kong
Author(s):	Yat-Hung Chiang, (Department of Building and Real Estate, The Hong Kong Polytechnic University, Kowloon, Hong Kong), Eddie W.L. Cheng, (School of Commerce and Management, Southern Cross University, Gold Coast, Australia), Patrick T.I. Lam, (Department of Building and Real Estate, The Hong Kong Polytechnic University, Kowloon, Hong Kong)
Citation:	Yat-Hung Chiang, Eddie W.L. Cheng, Patrick T.I. Lam, (2010) "Epistemology of capital structure decisions by building contractors in Hong Kong", Construction Innovation: Information, Process, Management, Vol. 10 Iss: 3, pp.329 - 345
Keywords:	Capital structure, Construction industry, Contract workers, Decision making, Financing, Hong Kong
Article type:	Research paper
DOI:	10.1108/14714171011060105 (Permanent URL)
Publisher:	Emerald Group Publishing Limited
Acknowledgements:	The work described in this paper was fully supported by a grant from the Research Grants Council of the Hong Kong Special Administrative Region, China (Project No.: PolyU 5144/06E). The authors are grateful to the respondents who completed the questionnaires, to the eight contractors who generously granted the interviews and to the three anonymous referees for their comments. All views and the remaining faults in this paper are the responsibilities of the authors.
Abstract:	Purpose – This paper aims to identify a set of potential determinants of capital structure. By knowing the key determinants, it is possible to understand how building contractors make decisions on capital structure. Design/methodology/approach – A questionnaire survey was conducted to solicit Hong Kong building contractors' view on the predictive power of a set of financial ratios on capital structure. Each of the seven proxies of capital structure was regressed on the five financial ratios. The usual diagnostic tests (i.e. Durbin-Watson and variance inflation factor tests) and plots of residuals and normality were carried out to ensure that assumptions of linear regression analysis were met. To validate the findings, eight contractors were further interviewed. Findings – Both measures of long-term debts (i.e. “long-term debt divided by total assets” and “long-term debt divided by total debt”) are proven to be related to “tangibility” significantly. Also, perceived growth opportunities are significantly related to three proxies for capital structure (i.e. total debt to capital, long-term debt and long-term leverage). Research limitations/implications – Further research should be undertaken to improve the quality of data and to enrich the understanding of how contractors define their capital structures. Originality/value – Despite a plethora of research having been done by financial researchers, there are very few relevant papers in the construction field. This paper is intended to explore how building contractors made decisions on capital structure.