The Effect of Capital Structure on Corporate Performance:Empirical Enalysis of Listed Firms in China

摘要

This paper seeks to analyze the relationship between capital structure and corporate performance. The investigation has been performed using panel data procedure for a sample of 320 Chinese firms listed on the Shanghai Stock Exchange in the period from 2001 to 2006. The regression results show a significantly negative relation between short-term debt and corporate performance. However, a negative but insignificant relationship between long-term debt and profitability was found. With regard to the relationship between total debt and profitability, the results exhibit a significantly negative association between leverage ratio and performance. This suggests that agency issues may lead to Chinese firms pursuing very high debt policy, thus resulting in lower performance.