Determi~larlts of Capital Str~~ctut-e: Evidence from China Public
Listed Industrial Companies
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PERAKUANKERJAKERTMPROJEK (CeItEmtion of Pmject Paper)
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(808456)Calan untuk ljasah Sarjana
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(&tndidafrs for h e degree of)
LUSTER O f SCIENCE IFINANCE)
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kertas pmjek y a q beitquk r pmject paper of the fdllowing title)
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DETERMINANTS OF CAPITAL STRUCTURE: EVIDENCE FROM CHINA PUBLIC LISTED INDUSTRIAL COMPANIES
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Nama m y e l i :4tasoc. PROF. NowFlFAH BT AHMaD
(Name of SupeNisor)r,
PERMISSION
In i.cpl-cscnting this tlicsis in partial fultillmcnt of the post gi.aduatc degree from IJni\:ersiti Lltara Malaysia. I agree tliat the Uni\lcrsity Library mal<e it frccly available for i~ispcction. I further agl.ce tli~it permission of copying of this tlicsis in any manner.
in \vliolc or in part. for scliolal-ly purposes may be granted by illy supci-visor or. i l l l ~ c r abscncc. by tlic Dean of Othman Ycop Abdullnh Gr:~duatc School of Busiiicss. It is undcrstr>od that ally copying or publication or use of this thesis or parts thereof for financial gain shall not be allowed without my written pel-mission. [t is also unclei-stood tliat duc recognition shall be gi\,en to ille and to IJni\,crsiti IJtal-a M~llaysia for iuny sc1iola1-I) use ~ : h i c I i may hc made o t ' a ~ l y material li-oin m y thesis.
Rcclucsts for pcr~nissian to copy or to makc other LISC of i l ~ a t c r i a l ~ i l l this thesis. 111
n,liolc or in pal-t shall be a(tdl.c~sec1 to:
Dean of Rcscarcli '9: Postgt-aduate Studies Ollimaii Ycop .Abdullali Gi-aduatc School of Bi~sincss
Cni\crsiti Iltara Malaysia
()(>(J 1 (1 S I I I ~ C ) ~ ,
l i c d n i ~ Darul Aman
ABSTRACT
This 1>apcr csami~ies determinants of capital structure of China-Listed cornpanics in Sliang Hai Stock E s c l i a ~ ~ g c . P~niitability. sizc. gro\\'tli rate and liquidity arc tlic
\ariables used as tlic' indepciiclcnt \,ariablcs, \vliile capital stl-uctul-c is prosicd bv 1 - t \ . c ~ a g c . ,-. The capital ~narkct of China went tlil-ougli a rcmarliablc grou.tli from 2006 to 2 O O S , but currently i t is in deep recession. This study loc)ks at the factors tliat iniluc~icc China's industrial companies' capital structure in a ten-year pel-iod, li-on1 1 O O S to 30 10. The tindings show tliat sizc is positively and signiticantly conelntcd to Ic\,c~-age. \\~liilst litluidity is negatively but sigliiticalitly intluenccs level-agc. Both p~'c,iitability and gro\\.tli rates tlo not have any e t i c t on capital stl-ucturc of the 907 illtlustrial co~npanics esamineti. 'Tl~c tintlings aiso demonstrate that ncitlie~. the pecl;ing order tlicory nor tradc-off theory derived fuom tlic western setting could proviclc c o n \ , i ~ ~ c i n g ecsl>lanation fi,r the capital S ~ I - L I C ~ U ~ C c l l ~ i c e s of the C l i i ~ i ; ~ ' ~ cc,inp;~~iics. Tllc diffcrcnccs in the clloiccs m a y be attributed to the flndamcntal i~~stitutional assumptions ill the wcsterli models that arc not valid in Cllina.
I<c~.words: Capital structure. protitability. s i x . growth. liquidity, peclting ordcr, trade-oft:
I \vould like to extend mJr gratitutlc to m y tl~esis super\/isor. Associate Professor NOI-alif~rli Ahmad for hcl- \ aluahlc support. contribution and guidance.
Special thanks are also extendcd to all lecturers in the Master of Science (Fin~lnce) Ixogr;iin, and the O t l ~ ~ n a n \(cop .4bdullali GI-aduate Scl~ool o f Business, Univcrsiti Utara Malaysia \vho had helped me in gctting ,:through thc hard time, also fbr their u s e f ~ l k ~ i o \ \ Icdge a n d ~nformation.
I also \\,ish to acl<liou~lcdgc the sul-~port of my I-esl-~c.ctcd parents. Their continuous support. unconditional 1oi.e. cncouragemcnt. and sacrifice, has hccn exti-aordinary and has contributccl to the success o f my study.
1 am gl.ateful for the cncouragcment that I ~ . e c ~ i v c d fi-0111 a11 of m y friends. and \\.IIO Ila\,c mndc nly stay and study at this uni\'c~.sity a \\,o~-tln\.l~ilc and an c~ljoyahlc iourilcy.
TABLE OF CONTENT
Chapter One:
INTRODUC'1710N
I . 1 Background ... 1
1.2 ,.All Ovcl-\.ic\\, 01' Cllincse Capital Mal-]<ct -- --- -- 4
1.3 Problem Statement ... 8
1 .-I. Rcscarcli Questions ... 9
1 .5 Rescarcll O[?jccti\.es ... I O 1 ,b Signiticuncc ( ) f t l l c study ... - 1 0 1 ,7 Limitaticlns of the Stu(jy ... - ---- I I
CHAPTER TWO:
LIrTERATURE R E V I E W
2.2 Empirical E\.idcncc . . . 12CI-IAPTER T H R E E :
METHODOLOGY
CI-IAPTEK FOUR:
RESULTS A N D FIN D[NGS
CHAPTER FIVE:
CONCI,USION AND RE('OMMENDA1'IObl
5 , 1 ('ollclusion a n d Rccommcncllltion . . . I(,
List o f F i g L I I ~ C s - - - i
I,ist o f Tablcs--- vii
I<cl'p,.ci,cc ... 5 0
List of Figure:
>. t.Isurc 1 - - - 30List of 'lhblcs:
Table 4. 1 Multicolljncal-ity ... 3 0 . . . . Tal7lc 4.2 Dcscrlptl\,c Statlstlcc . . . . . 3')-I'ablc 4 3 Col-rc]atic)lly . - ... 40
'fable 4.4 Modc[ Sulllll,a~~v . . . 41
TLlblc 4.5 /?\NO\',A, . . . 43
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-
-1 ' 7 C 1 4,(, Coctflcicllts . . . 43P a g e 11
CHAPTER 1
INTRODUCTION
1.1 BACKGROUND
No\vad:~ys. no matter \\liicli industrial ill-cll a company is in\/ol\'cd in. managing clll'ital structure is important. Companies usually need capital to support funding, such as to buy propert). and to build or acquire production f'acilities and equipment to expand tlicil- business. The needs for capital would either c o ~ n c fi-0111 internal i'untling atld/n~- external f ~ ~ ~ i d i n g . A linnncial nianagcr should plan a n optimum capital for conll'any in nrdcr to maximize c o n ~ p a n y ' s PI-olit and market \,aluc. Tlie tlctcrminatioli of tlic opti~iium capital S ~ I - L I C ~ L I ~ C is a d i f l i ~ i ~ l t task and Ilic m:lnagcr has to perfonii this task properly. so that the iirm c o ~ ~ l d acliic\~e its ultimatc ob~jccti\~e
\\,liich is maximization ol'~liarcIioItle~-~' \\.c;~ltli.
Tlicl-c \\.ere \~olurninous ol' rcsearchcs tcstcd o n companies' clioicc in the tlctcrminants of tllc dcbl to equity ratios in \,arious sccto~.s o f tlic ecoliomy, such as restaurant industrj. (Upncja and Dalbol-, 2001 ). bank intlustrics (Amitlu. 2007).
P o ~ l u g i ~ s c listed company (Sen-asclueiro and Rng:~o, 2009) and Turl<isll lodging companies (I<aradcniz. I<andir, :~ntl Onal, 2009). O n e 01' the main conclusions of tlicsc empil-ical sti~clies is that industl-ial classilication is ~ u i inipol-tant determinant ol' capital stl-uctu~-c hccause tlicrc arc \,arioi~s dil'l21-ciiccs among ilidustrics ant1 compa~iics \\.itliin a n industry.
Capital S ~ ~ L I C ~ L I I - C is tlic niix oI'debt ;uid equity usctl by n company to fin:~ncc its assets. Capital S ~ I . L I C ~ L I I . C dccisiori is one 01' tlic most signilicant decisions \\.liicli is
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