Financing behavior of firms in tranquil and crisis period: Evidence from China

Abstract

This study investigates the financing behavior of Chinese firms in tranquil and crisis situation over the period 2002–2014. We divide the sample into three sub-periods; pre-crisis, during-crisis, and post-crisis. The results indicate some noteworthy findings as this study incorporates firm and country-level factors. We find that the firms’ financing choice depends on the market conditions. The results show that Chinese firms have significantly decreased their dependence on leverage after the eruption of global financial crisis. Furthermore, we find that financial crisis of 2007–2008 has significantly affected the explanatory power of all factors. Moreover, profitability, size, and liquidity are important factors determining capital structure of the firm in financial crisis period.

Keywords:

• capital structure
• financial crisis
• Chinese non-financial firms

Public Interest Statement

The 2007 financial crisis period affected the corporations from different perspective especially the financing behavior of the firms. In this study, we investigate into how different factors affect the financing choice of the Chinese firms in normal and financial crisis period. Our results highlight that Chinese firms have decreased their dependence on acquiring debt in financial crisis period. In addition, the most important factors that affect the financing choice of the Chinese firms are liquid assets, profitability, and size of the firm. Our results provide valuable information to investors and policy-makers about the financing behavior of firms in different market conditions.

Notes

1. The results of Hausman Specification test are available upon request.

Additional information

Notes on contributors

Sultan Sikandar Mirza

Sultan Sikandar Mirza is an assistant professor in Zhejiang Gongsheng University, Hangzhou, China. His research interests include Financial markets, Capital Structure, and Corporate Governance. His research has been published in different international journals.

Khalil Jebran

Khalil Jebran is a PhD Candidate in School of Accounting, Dongbei University of Finance and Economics, Dalian, China. His research interests include Financial Markets, Foreign Exchange Markets, Behavioral Finance, Capital structure and Corporate Governance. His research has been published in different international journals.

Yu Yan

Yu Yan is a lecturer at School of foreign languages, Dalian Polytechnic University, Dalian, China. Her research interests include Linguistics and Economy. Her research has been published in different journals.

Amjad Iqbal

Amjad Iqbal is an assistant professor at University of Swat, Pakistan. His research interests include Financial markets, Capital Structure, Product Market Competition, and Corporate Governance. His research has been published in different international journals.