1. Introduction
Capital structure is an important part of every firm’s strategy and planning, as it is crucial for them to keep the right level of financial leverage in order to grow at
competitive speed without putting too much distress on its finance. It has been the topic of many researches during the last few decades, when many researchers tried to find out what drives companies to decide how much money to borrow, but the results regarding the determining factors often varied quite significantly. Some of the initial papers in the United States of America, like the empirical study by Titman & Wessels (1988) and the survey by Harris & Raviv (1991) would state opposite results. Because of that, many studies followed in trying to find the reliably important factors in the US and other countries. One of the most recent researches by Frank & Goyal (2009) examined the factors used in various previous researches using the Bayesian information criterion (BIC) and basing on the data of publicly traded firms in the US between years 1950 and 2003 checked the results over time, in the end finding six reliably important factors: Industry median leverage, assets tangibility, profitability, firm size, market-to-book assets ratio and expected inflation. Studies in different countries have found that the factors reliable in the US are also important in other developed (Rajan & Zingales, 1995; Wald, 1999) and developing countries (Booth, Aivazian, Demirguc-Kunt, & Maksimovic, 2001; Demirgüç-Kunt & Maksimovic, 1999).
However, due to the uniqueness of the Chinese market and its environment, the studies above have all avoided including it in their studies. China differs from other countries in that it has relatively weak and ineffective laws regarding investor protection, accounting standards, quality of government, and corporate governance (Allen, Qian, &
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Qian, 2005), high state influence and control in most of the industries and that the government controls the volume and price of equity issuance (Chang, Chen, & Liao, 2014). With its constantly growing economy and slowly opening to international companies market, the importance of the country in the world economy is increasing and thus determining the factors influencing capital structure decisions of Chinese companies is also becoming more important. Some studies focused specifically on China, but were again reaching different conclusions regarding the influence of some of the factors. Majority of researches agree when it comes to the positive influence on financial leverage of firm size and negative influence of profitability, but other determinants get mixed results. For example Li, Yue, & Zhao (2009) found that financial leverage decreases with asset tangibility, but according to many previous researches (Huang & Song, 2006;
Qian, Tian, & Wirjanto, 2009; Zou & Xiao, 2006) it has positive relationship with leverage.
A recent study by Chang et al. (2014), similarly to Frank & Goyal (2009) used the BIC to examine the available factors and identified profitability, industry median leverage, asset growth, asset tangibility, firm size, state control and the largest shareholding as the reliable determinants of capital structure in China. However, the sample used in the research was from years 1998 to 2009, which could prove to be a little bit outdated for a couple of reasons. First of all, most of the observations come from before the financial crisis of 2007-2008, which had a big impact on the markets around the world and influenced the ease with which companies can lend money. That could lead companies to use lower levels of financial leverage. Furthermore, China is still going through a transformation and the institutional changes inside the country could have an effect on the firms as well. In particular, although there are still many state-owned enterprises and
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some major banks are influenced by the government, the influence of state ownership might have dwindled, as the government is trying to create more capitalistic market.
This paper focuses on how the financial crisis along with the institutional changes influenced the Chinese listed companies. This research is not going to examine the vast amount of factors that were used in previous researches and usually found unreliable, but instead is going to base the research on the findings of the analysis done by Chang et al. (2014) and use the seven determinants which they found to be reliably important, with addition of a few macroeconomic factors that were not included in previous researches but might also help explain changes in financial leverage levels. Some of the questions that I am attempting to answer are: Did the companies change their financial behavior to adapt to the new reality after 2008? Are the factors that were identified as reliable determinants of financial leverage before the crisis still as reliable as before? If not, what has changed and what are the new factors that should be used?
The subsequent parts of the paper are organized as follows. Section 2 presents the related literature, reviews relevant theories and contains hypothesis predictions. In section 3 the data sample and research methodology are described. Section 4 discusses the research results, and section 5 presents the conclusions drawn from the research.
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