Debt capacity, debt choice, and underinvestment problem: Evidence from China

Figures & data

Table 1. Description of variables.

Symbol	Variable	Description
LEV	Leverage	Total liabilities / total assets
SDEBT	Short-term debt	Short-term debt / total liabilities
GTH	Tobinq	Market value/ Book value of assets
SGTH	Sales Growth	Growth rate of operating income
DCAP	Debt Capacity	[Fixed assets / (Long-term debt + equity)]
EFTR	Effective Tax Rate	Tax expense / EBIT
TA	Total Assets	Natural log of total assets
ROA	Return on Assets	EBIT/total assets
BSIZE	Board Size	Total number of members of the board
CEODUA	Dual Leadership	1 if the chairman of the board is holding both positions i.e., chairman of the board and CEO, otherwise 0
INDBOARD	Independent Directors	Ratio of independent board members to total members of the board

Source: Authors formation.

Table 2. Descriptive statistics.

Variable	Obs	Mean	Std. Dev.	Min	Max
LEV	18,677	0.492	0.196	0.123	0.902
SDEBT	18,677	0.26	0.325	0	1
GTH	18,677	1.991	1.715	0.265	9.735
SGTH	18,677	0.204	0.427	−0.494	2.117
DCAP	18,677	0.463	0.378	0.005	1.678
EFTR	18,677	0.174	0.15	−0.217	0.622
TA	18,677	22.142	1.321	16.52	28.509
ROA	18,677	0.044	0.046	−0.111	0.152
BSIZE	18,677	8.91	1.81	3	19
CEODUA	18,677	0.213	0.409	0	1
INDBOARD	18,677	0.37	0.055	0.091	0.8

Notes. This table reports descriptive statistics. See Table 1 for variables definitions.

Source: Authors formation.

Table 3. Pairwise correlation and results of multicollinearity test.

Variables	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)	VIF
(1) LEV	1.00
(2) SDEBT	0.04*	1.00									1.15
(3) GTH	0.38*	−0.08	1.00								1.47
(4) DCAP	0.35*	0.23*	−0.20*	1.00							1.16
(5) EFTR	0.05*	−0.05*	−0.12*	−0.05*	1.00						1.05
(6) TA	0.36*	−0.22*	−0.49*	0.10*	0.13*	1.00					1.57
(7) ROA	−0.27*	−0.08*	0.15*	−0.14*	0.13*	0.07*	1.00				1.10
(8) BSIZE	0.13*	−0.04*	−0.16*	0.17*	0.03*	0.24*	0.04*	1.00			1.34
(9) CEODUA	−0.12*	0.06*	0.12*	−0.09*	−0.05*	−0.13*	0.01*	−0.16*	1.00		1.05
(10) INDBOARD	−0.01	−0.07	0.04*	−0.06*	0.01	0.05*	−0.04*	−0.40*	0.09*	1.00	1.239

Notes. * shows the level of significance at 1%. See Table 1 for variables definitions.

Source: Authors formation.

Table 4. Findings of leverage equation.

	Dependent variable = Leverage
	(1)	(2)
Variables	DIFF GMM	SYS GMM
LEVt-1	0.639***	0.663***
	(0.0253)	(0.0186)
SDEBT	0.0581***	0.0606***
	(0.0103)	(0.0103)
GTH	0.00811***	0.00816***
	(0.00171)	(0.00170)
DCAP	0.114***	0.108***
	(0.00843)	(0.00805)
EFTR	−0.00486	−0.00629
	(0.00482)	(0.00487)
TA	0.0739***	0.0716***
	(0.00662)	(0.00645)
ROA	−0.545***	−0.547***
	(0.0322)	(0.0314)
BSIZE	−0.000319	−0.000115
	(0.00124)	(0.00124)
CEODUA	0.000413	0.00184
	(0.00349)	(0.00351)
INDBOARD	−0.0566**	−0.0504*
	(0.0273)	(0.0276)
Constant	−0.178	−0.135
	(0.145)	(0.138)
Year	Yes	Yes
Observations	12,060	14,969
Number of Stkcd	2,208	2,468
AR(1)	−16.85***	−19.44***
AR(2)	−0.95	−0.90
Sargan (p-value)	0.25	0.15

Notes. This table reports the findings of leverage equation. Arrellano-Bond tests are represented by AR(1) & AR(2) for serial correlation in residuals. Sargan (p-value) refers to the p-value of Sargan test to check the over-identification of instruments. Values of standard errors are given in parenthesis. ***, **, and * shows the level of significance at 1%, 5%, and 10%. See Table 1 for variables definitions.

Source: Authors formation.

Table 5. Moderating effect of short-term debt on the relationship between growth and leverage.

	Dependent variable = Leverage
	DIFF GMM		SYS GMM
Variables	(1)	(2)	(3)	(4)
LEVt-1	0.639***	0.636***	0.663***	0.663***
	(0.0253)	(0.0255)	(0.0186)	(0.0188)
SDEBT	0.0581***	0.0269**	0.0606***	0.0282**
	(0.0103)	(0.0120)	(0.0103)	(0.0121)
GTH	0.00811***		0.00816***
	(0.00171)		(0.00170)
SDEBT*GTH		0.0137***		0.0143***
		(0.00334)		(0.00336)
DCAP	0.114***	0.114***	0.108***	0.108***
	(0.00843)	(0.00845)	(0.00805)	(0.00808)
EFTR	−0.00486	−0.00387	−0.00629	−0.00519
	(0.00482)	(0.00482)	(0.00487)	(0.00488)
TA	0.0739***	0.0655***	0.0716***	0.0631***
	(0.00662)	(0.00669)	(0.00645)	(0.00648)
ROA	−0.545***	−0.545***	−0.547***	−0.550***
	(0.0322)	(0.0325)	(0.0314)	(0.0318)
BSIZE	−0.000319	−0.000189	−0.000115	3.18e-05
	(0.00124)	(0.00123)	(0.00124)	(0.00124)
CEODUA	0.000413	0.000901	0.00184	0.00225
	(0.00349)	(0.00349)	(0.00351)	(0.00352)
INDBOARD	−0.0566**	−0.0531*	−0.0504*	−0.0468*
	(0.0273)	(0.0273)	(0.0276)	(0.0276)
Constant	−0.178	−0.170	−0.135	−0.122
	(0.145)	(0.147)	(0.138)	(0.141)
Year	Yes	Yes	Yes	Yes
Observations	12,060	12,060	14,969	14,969
Number of Stkcd	2,208	2,208	2,468	2,468
AR(1)	−16.85***	−16.71***	−19.44***	−19.32***
AR(2)	−0.95	−0.99	−0.90	−0.94
Sargan (p-value)	0.25	0.19	0.15	0.13

Notes. This table reports the result of moderating effect of short-term debt on the relationship between growth and leverage. Arrellano-Bond tests are represented by AR(1) & AR(2) for serial correlation in residuals. Sargan (p-value) refers to the p-value of Sargan test to check the over-identification of instruments. Values of standard errors are given in parenthesis. ***, **, and * shows the level of significance at 1%, 5%, and 10%. See Table 1 for variables definitions.

Source: Authors formation.

Table 6. Findings of leverage equation for S.O.E.s and N.S.O.E.s.

	Dependent variable = Leverage
	DIFF GMM
	SOEs		NSOEs
Variables	(1)	(2)	(3)	(4)
LEVt-1	0.667***	0.666***	0.580***	0.573***
	(0.0375)	(0.0377)	(0.0318)	(0.0319)
SDEBT	0.0409***	0.0298**	0.0708***	0.0266*
	(0.0129)	(0.0147)	(0.0140)	(0.0171)
GTH	0.00626**		0.0104***
	(0.00246)		(0.00220)
SDEBT*GTH		0.00682*		0.0161***
		(0.00544)		(0.00409)
DCAP	0.0828***	0.0815***	0.156***	0.156***
	(0.00836)	(0.00844)	(0.0142)	(0.0142)
EFTR	−0.00575	−0.00471	0.000739	0.00159
	(0.00548)	(0.00549)	(0.00791)	(0.00785)
TA	0.0760***	0.0688***	0.0800***	0.0663***
	(0.00804)	(0.00829)	(0.00986)	(0.00977)
ROA	−0.596***	−0.596***	−0.490***	−0.495***
	(0.0366)	(0.0371)	(0.0474)	(0.0476)
BSIZE	−0.00113	−0.00103	−2.11e-05	1.54e-06
	(0.00147)	(0.00147)	(0.00185)	(0.00186)
CEODUA	−0.00431	−0.00418	0.00292	0.00353
	(0.00468)	(0.00468)	(0.00453)	(0.00451)
INDBOARD	−0.0552	−0.0513	−0.0122	−0.00971
	(0.0338)	(0.0337)	(0.0394)	(0.0395)
Constant	−0.502***	−0.463***	−0.186	−0.159
	(0.180)	(0.179)	(0.206)	(0.209)
Year	Yes	Yes	Yes	Yes
Observations	6,213	6,213	5,847	5,847
Number of Stkcd	983	983	1,334	1,334
AR(1)	−10.94***	−10.90***	−12.82***	−12.64***
AR(2)	−1.18	−1.13	−.41	−.53
Sargan (p-value)	0.47	0.43	0.39	0.29

Notes. This table reports the findings of leverage equation for S.O.E.s and N.S.O.E.s. Arrellano-Bond tests are represented by AR(1) & AR(2) for serial correlation in residuals. Sargan (p-value) refers to the p-value of Sargan test to check the over-identification of instruments. Values of standard errors are given in parenthesis. ***, **, and * shows the level of significance at 1%, 5%, and 10%. See Table 1 for variables definitions.

Source: Authors formation.

Table 7. Findings of leverage equation with an alternative proxy of growth.

	Dependent variable = Leverage
	(1)	(2)
Variables	DIFF GMM	SYS GMM
LEVt-1	0.638***	0.666***
	(0.0252)	(0.0183)
SDEBT	0.0581***	0.0612***
	(0.0103)	(0.0103)
SGTH	0.0121***	0.0127***
	(0.00258)	(0.00260)
DCAP	0.113***	0.106***
	(0.00838)	(0.00799)
EFTR	−0.00379	−0.00496
	(0.00482)	(0.00487)
TA	0.0524***	0.0497***
	(0.00639)	(0.00615)
ROA	−0.576***	−0.586***
	(0.0323)	(0.0315)
BSIZE	−0.000323	−0.000136
	(0.00123)	(0.00124)
CEODUA	0.000741	0.00194
	(0.00350)	(0.00353)
INDBOARD	−0.0531*	−0.0464*
	(0.0275)	(0.0277)
Constant	−0.0242	0.0224
	(0.145)	(0.138)
Year	Yes	Yes
Observations	12,060	14,969
Number of Stkcd	2,208	2,468
AR(1)	−16.91***	−19.45***
AR(2)	−0.53	−0.46
Sargan (p-value)	0.22	0.20

Notes. This table reports the findings of Leverage equation with an alternative proxy of growth. Arrellano-Bond tests are represented by AR(1) & AR(2) for serial correlation in residuals. Sargan (p-value) refers to the p-value of Sargan test to check the over-identification of instruments. Values of standard errors are given in parenthesis. ***, **, and * shows the level of significance at 1%, 5%, and 10%. See Table 1 for variables definitions.

Source: Authors formation.

Table 8. Moderating effect of short-term debt on the relationship between growth and leverage with an alternative proxy of growth.

	Dependent variable = Leverage
	DIFF GMM		SYS GMM
Variables	(1)	(2)	(3)	(4)
LEVt-1	0.638***	0.638***	0.666***	0.667***
	(0.0252)	(0.0252)	(0.0183)	(0.0184)
SDEBT	0.0581***	0.0518***	0.0612***	0.0546***
	(0.0103)	(0.0104)	(0.0103)	(0.0103)
SGTH	0.0121***		0.0127***
	(0.00258)		(0.00260)
SDEBT*SGTH		0.0349***		0.0358***
		(0.00946)		(0.00957)
DCAP	0.113***	0.113***	0.106***	0.106***
	(0.00838)	(0.00846)	(0.00799)	(0.00807)
EFTR	−0.00379	−0.00338	−0.00496	−0.00457
	(0.00482)	(0.00480)	(0.00487)	(0.00486)
TA	0.0524***	0.0540***	0.0497***	0.0512***
	(0.00639)	(0.00644)	(0.00615)	(0.00621)
ROA	−0.576***	−0.571***	−0.586***	−0.579***
	(0.0323)	(0.0326)	(0.0315)	(0.0318)
BSIZE	−0.000323	−0.000320	−0.000136	−0.000118
	(0.00123)	(0.00123)	(0.00124)	(0.00124)
CEODUA	0.000741	0.000556	0.00194	0.00184
	(0.00350)	(0.00350)	(0.00353)	(0.00354)
INDBOARD	−0.0531*	−0.0520*	−0.0464*	−0.0458*
	(0.0275)	(0.0274)	(0.0277)	(0.0277)
Constant	−0.0242	−0.0673	0.0224	−0.0157
	(0.145)	(0.146)	(0.138)	(0.140)
Year	Yes	Yes	Yes	Yes
Observations	12,060	12,060	14,969	14,969
Number of Stkcd	2,208	2,208	2,468	2,468
AR(1)	−16.91***	−16.86***	−19.45***	−19.42***
AR(2)	−0.53	−0.58	−0.46	−0.51
Sargan (p-value)	0.22	0.19	0.20	0.13

Notes. This table reports the results of moderating effect of short-term debt on the relationship between growth and leverage with an alternative proxy of growth. Arrellano-Bond tests are represented by AR(1) & AR(2) for serial correlation in residuals. Sargan (p-value) refers to the p-value of Sargan test to check the over-identification of instruments. Values of standard errors are given in parenthesis. ***, **, and * shows the level of significance at 1%, 5%, and 10%. See Table 1 for variables definitions.

Source: Authors formation.

Table 9. Findings of leverage equation with an alternative proxy of growth for S.O.E.s and N.S.O.E.s.

	Dependent variable = Leverage
	DIFF GMM
	SOEs		NSOEs
Variables	(1)	(2)	(3)	(4)
LEVt-1	0.665***	0.663***	0.571***	0.573***
	(0.0372)	(0.0376)	(0.0315)	(0.0315)
SDEBT	0.0424***	0.0394***	0.0700***	0.0611***
	(0.0130)	(0.0128)	(0.0139)	(0.0140)
SGTH	0.00984***		0.0144***
	(0.00346)		(0.00339)
SDEBT*SGTH		0.0180*		0.0512***
		(0.0124)		(0.0119)
DCAP	0.0810***	0.0814***	0.156***	0.157***
	(0.00837)	(0.00845)	(0.0143)	(0.0143)
EFTR	−0.00476	−0.00462	0.00111	0.00186
	(0.00548)	(0.00546)	(0.00781)	(0.00779)
TA	0.0604***	0.0643***	0.0489***	0.0489***
	(0.00787)	(0.00791)	(0.00910)	(0.00913)
ROA	−0.619***	−0.606***	−0.532***	−0.535***
	(0.0368)	(0.0370)	(0.0470)	(0.0475)
BSIZE	−0.000922	−0.001000	−0.000309	−0.000410
	(0.00147)	(0.00146)	(0.00184)	(0.00184)
CEODUA	−0.00369	−0.00405	0.00290	0.00259
	(0.00467)	(0.00468)	(0.00452)	(0.00453)
INDBOARD	−0.0453	−0.0477	−0.0206	−0.0210
	(0.0339)	(0.0338)	(0.0393)	(0.0390)
Constant	−0.325*	−0.413**	0.00386	−0.000212
	(0.174)	(0.175)	(0.204)	(0.206)
Year	Yes	Yes	Yes	Yes
Observations	6,213	6,213	5,847	5,847
Number of Stkcd	983	983	1,334	1,334
AR(1)	−11.00***	10.92***	−12.78***	−12.75
AR(2)	−0.97	−1.03	−0.11	−0.10
Sargan (p-value)	0.42	0.44	0.39	0.37

Notes. This table reports the findings of leverage equation with an alternative proxy of growth for S.O.E.s and N.S.O.E.s. Arrellano-Bond tests are represented by AR(1) & AR(2) for serial correlation in residuals. Sargan (p-value) refers to the p-value of Sargan test to check the over-identification of instruments. Values of standard errors are given in parenthesis. ***, **, and * shows the level of significance at 1%, 5%, and 10%. See Table 1 for variables definitions.

Source: Authors formation.