Firm leverage and labour share: evidence from China

Figures & data

Graph 1. The trend of labour share in China.

Graph 2. Labour share in non-financial sectors.

Table 1. Descriptive statistics.

Variable	N	Mean	S.D.	Median	Min	Max
LS_1	9670	0.2260	0.1230	0.2094	0.0327	0.6281
LS_2	9670	0.2622	0.1378	0.2451	0.0378	0.6948
LS_3	9670	0.1191	0.0837	0.1001	0.0044	0.4534
LS_4	9670	0.1145	0.0780	0.0973	0.0107	0.4189
LS_5	9670	0.0638	0.0457	0.0541	0.0043	0.2404
Lev	9670	0.0243	0.0578	0.0065	0.0005	0.4044
Interest_Exp	2688	1.3181	3.1154	0.2307	0.00004	18.4665
Size	9670	22.5503	1.3559	22.3566	20.1227	26.6466
Age	9670	18.6117	5.4429	18.0000	6.0000	34.0000
Roa	9670	0.0543	0.0399	0.0451	0.0023	0.2008
Rfa	9670	0.2156	0.1703	0.1758	0.0019	0.7251
Ca	9670	0.5683	0.2234	0.5929	0.0781	0.9644
Tfp	9670	7.8673	2.0282	7.9841	4.4146	10.4444
Sa	9670	−3.822	0.3163	−3.8383	−4.4904	−2.1597
Own	9670	0.4984	0.5000	0.0000	0.0000	1.0000

Data source: Author's own calculations.

Graph 3. Threshold parameter graph.

Table 2. Threshold tests (bootstrap = 300).

Threshold	RSS	MSE	F stat	Prob	Crit10	Crit5	Crit1
Single	17.0815	0.0018	29.21	0.0100	19.3170	24.3060	29.1377
Double	17.0478	0.0018	19.11	0.1300	22.0393	27.6168	39.5527
Triple	17.0188	0.0018	16.42	0.1900	21.4409	28.9101	43.3014

Note: We present the threshold effect test, including the RSS, the mean squared error (MSE), the F statistic (F stat), the probability value of the F statistic (Prob), and critical values at 10%, 5%, and 1% significance levels (Crit10, Crit5, and Crit1, respectively).

Data source: Author's own calculations.

Table 3. Analysis of leverage and labour share of the firms.

DV = Labour share (LS_1)	(1)	(2)
	coefficient	Standard errors
Lev(th ≤ λ = 0.0064)	1.9347***	(0.5148)
Lev(th > λ = 0.0064)	−0.1191***	(0.0427)
Size	0.0072*	(0.0041)
Age	0.0016***	(0.0004)
Roa	−0.7110***	(0.0412)
Rfa	−0.0526***	(0.0174)
Ca	−0.0587***	(0.0159)
Tfp	−0.0054***	(0.0011)
Sa	−0.0057	(0.0084)
Own	0.0050	(0.0128)
Cons	0.1342*	(0.0786)
Adj. R^2	0.248
N	9670

Note: See variable definition in Table A1. Standard errors cluster at firm-level in parentheses.

* p < 0.10, **p < 0.05, ***p < 0.01.

Data source: Author's own calculations.

Table 4. Robustness tests.

DV=	(1)	(2)	(3)	(4)	(5)	(6)	(7)
	LS_2	LS_3	LS_4	LS_5	LS_1	LS_1	LS_1
Lev (th ≤ λ)	2.3084***	10.6104***	10.0980***	2.7211***		1.9108***	2.1974***
	(0.5718)	(2.1083)	(1.8990)	(0.4532)		(0.5200)	(0.5300)
Lev (th ≤ λ)	−0.1142**	−0.0902***	−0.0699***	−0.0246***		−0.0562*	−0.1240***
	(0.0500)	(0.0249)	(0.0180)	(0.0087)		(0.0302)	(0.0411)
Interest_Exp (th ≤ λ)					0.1897***
					(0.0680)
Interest_Exp (th ≤ λ)					−0.0002
					(0.0002)
λ	0.0064	0.0020	0.0019	0.0034	0.0328	0.0975	0.0064
Control variables	Included	Included	Included	Included	Included	Included	Included
Cons	0.1248	0.1607**	0.1762***	0.2069***	0.1205*	0.1827**	0.1360*
	(0.0917)	(0.0681)	(0.0628)	(0.0404)	(0.0683)	(0.0883)	(0.0786)
Adj. R^2	0.240	0.157	0.179	0.118	0.079	0.227	0.247
N	9670	9670	9670	9670	2688	8703	9910

Note: Model 1 to Model 4 present the results for using alternative measurements of dependent variables (i.e. LS_2, LS_3, LS_4, LS_5). Model 5 presents the results for using alternative measurements of the independent variables (Interest_Exp). Model 6 used a lagged version of the endogenous variable and re-estimate the main models. Model 7 include sample for firms with labour share is above 1. See variable definition in Table A1. Standard errors cluster at firm-level in parentheses.

* p < 0.10, **p < 0.05, ***p < 0.01.

Data source: Author's own calculations.

Table 5. Analyses for dividing samples and including the squared term of the independent variables.

DV=LS_1	(1)	(2)	(3)	(4)
	Lower leverage	Higher leverage	OLS	2SLS
Lev	0.0597***	−0.1282***	0.1095***	0.3527***
	(0.0189)	(0.0481)	(0.0359)	(0.0305)
Lev^2			−0.0859**	−0.4666***
			(0.0417)	(0.0339)
Control variable	Included	Included	Included	Included
Cons	0.6913***	−0.0285	0.3582***	0.5537***
	(0.1520)	(0.1366)	(0.1048)	(0.0462)
Firm effect	Included	Included	Included	Included
Year effect	Included	Included	Included	Included
Adj. R^2	0.302	0.223	0.256	0.220
N	4830	4840	9670	8703

Note: See variable definition in Table A1. Standard errors cluster at firm-level in parentheses.

* p < 0.10, **p < 0.05, ***p < 0.01.

Data source: Author's own calculations.

Table 6. Heterogeneity analyses.

DV=LS_1	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)
	SOE	Non-SOE	Labour- intensive	Capital- intensive	Low financial constraint	High financial constraint	Growth	Maturity	Decline
Lev(th ≤ λ)	1.5871**	2.3981***	1.7046**	2.8151***	2.1055***	1.9238***	2.4717***	6.0515**	6.0705***
	(0.6880)	(0.7652)	(0.7212)	(0.6808)	(0.7437)	(0.6414)	(0.7529)	(3.0203)	(1.4760)
Lev(th > λ)	−0.1505***	−0.0711	0.0032	−0.2078***	−0.1453**	−0.0900*	−0.0174	−0.1938***	−0.1777
	(0.0451)	(0.0702)	(0.0745)	(0.0416)	(0.0579)	(0.0527)	(0.0671)	(0.0493)	(0.1110)
λ	0.0065	0.0064	0.0065	0.0067	0.0064	0.0068	0.0065	0.0022	0.0063
Control variable	Included	Included	Included	Included	Included	Included	Included	Included	Included
Cons	0.0501	0.1968	0.5112***	−0.2721***	0.1628	0.0493	0.1389	0.1242	−0.1087
	(0.1014)	(0.1213)	(0.1003)	(0.0955)	(0.1227)	(0.1011)	(0.1259)	(0.1079)	(0.2293)
Adj. R^2	0.222	0.278	0.239	0.293	0.285	0.218	0.239	0.253	0.340
N	4910	4760	4830	4840	4830	4840	4030	4680	950

Note: Model 1 and 2 present the results of firm with different poverty rights (state-owned enterprises and non-state-owned enterprises). Model 3 and 4 present the results of firm with different factor intensity. Model 5 and 6 present the results of firm with different levels of financial constraints. Model 7 to Model 9 present the results of firm with different life cycles. See variable definition in Table A1. Standard errors cluster at firm-level in parentheses.

* p < 0.10, **p < 0.05, ***p < 0.01.

Data source: Author's own calculations.

Table A1. Variable definition.

Variable	Symbol	Definition
Dependent variable	LS_1	Main measurement for labour share of the firms by using GDP method. LS_1= employees’ total compensation / (employees’ total compensation + operating surplus + depreciation of fixed assets + net production tax).
	LS_2	Measurement for labour share of the firms in robustness tests. LS_2= employees’ total compensation / (employees’ total compensation + operating surplus + depreciation of fixed assets).
	LS_3	LS_3 is measured by the amount of employee compensation payable divided by the total operating income.
	LS_4	LS_4 is measured by the sum of the cash payments to and on behalf of employees and employee compensation payable divided by the total operating income.
	LS_5	LS_5 is measured by cash payments to and on behalf of employees at the end of the year.
Independent variable	Lev	Firm leverage (Lev) is calculated by debt per worker—the ratio of a firm’s total debt to the number of employees (unit: billion CNY/person).
	Interest_Exp	Interest expense per worker using in robustness tests.
Control variable	Size	Firm Size. It equals the natural logarithm of the total assets of the firm.
	Age	Firm age. It was measured by the number of years since the firm’s incorporation.
	Roa	Return on assets. It equals the net profit divided by total assets of the firms.
	Rfa	The ratio of the fixed asset to total assets.
	Ca	Liquid asset. The ratio of liquid assets scaled by total assets.
	Tfp	TFP is calculated by using the LP method.
	Sa	Financial constraint is calculated by using the SA index.
	Own	Nature of property rights while it is equal to 1 for SOEs (state-owned enterprises), otherwise 0.

Data source: Author's own calculations.

Table A2. Characteristics of cash flows in different enterprise life cycles.

	Growth		Maturity	Decline
Cash flow from operating activities	–	+	+	–	+	+	–	–
Cash Flow from investing activities	–	–	–	–	+	+	+	+
Cash Flow from financing activities	+	+	–	–	+	–	+	–

Data source: Author's own calculations.