Impact of split share structure reform on capital structures: empirical evidence from China’s listed companies

ABSTRACT

An econometric model based on a natural experiment and the difference-in-differences method is introduced to empirically investigate the impact of split share structure reform on capital structures. A total of 1026 listed companies in Chinese A-share during 2001–2011 are used as the sample for the research and interest-bearing debt ratios (BDRs) are taken as a representative indicator for capital structures. The theoretical and empirical analysis indicates that both market expansion effect and corporate governance effect caused by the split share structure reform are associated with an increase in BDR. As far as the timeliness is concerned, the effects of split share structure reform on capital structures will last 3–4 years.

KEYWORDS:

• Capital structure
• split share structure reform
• listed companies
• China

JEL Classification:

• C33
• C51
• O53

Notes

¹ The reason for seven dummy variables is that from the year 2005 (the beginning of the split share structure reform) to 2011 the sample involved in this study covers 7 years.

² The research objects in our study only include the companies implementing the reform in 2005, 2006 and 2007. The reason is that most of the companies listed in A-share completed the reform during 2005–2007. According to statistics, after 2007 there were only 5% of companies in A-share not implementing the split share structure reform.

³ Short-term borrowing is the money enterprises borrowed to maintain the normal operation or pay back debt, which is from banks or other financing institutions those outside units and should be repaid in 1 year (including 1 year); short-term bond is all kinds of bonds issued by enterprises, of which repayment period is 1 year (including 1 year).

⁴ Repayment period of long-term borrowing and long-term bond is more than 1 year.

⁵ ST means that stock dealings of companies, whose financial situation or other conditions are abnormal, have been specially treated by Shanghai and Shenzhen stock exchanges; *ST means that because the companies have showed continuous deficits for 3 years and are possible to be delisted the stock dealings have been in special treatment; PT stands for particular transfer, which means that the stocks, whose listings have been suspended, are offered circulation channel for particular transfer.

Additional information

Funding

This study was supported by the National Natural Science Foundation of China (NSFC) [grant number 71373143].