The influence of internal corporate governance mechanisms on capital structure decisions of Chinese listed firms

Purpose - The purpose of this paper is to examine the effects of internal corporate governance mechanisms on the capital structure decisions of Chinese-listed firms. Design/methodology/approach - Using a large and more recent data set consisting of 2,386 Chineselisted firms over the period from 1998 to 2012, the authors use different statistical methods (OLS, fixed effects and system GMM) to analyse the effects of firm-specific and corporate governance influences on capital structure. Findings - The authors find that the proportion of independent directors and ownership concentration exert significant influence on the level of Chinese long-term debt ratios after controlling for firm-specific determinants and split share reforms. Further analysis separating the sample of this paper into state-owned enterprises (SOEs) and privately owned enterprises (POEs) suggests that ownership concentration in the hands of the state leads to decrease in debt ratios. Research limitations/implications - The finding implies that concentrated ownership in the hands of the state appears more efficient compared to their private counterparts in their monitoring role. Originality/value - This paper extends prior literature, which has concentrated disproportionately on firm-specific influences on capital structure, to the effects of within-firm governance mechanisms on capital structure decisions. The paper contributes to the agency theory-capital structure discourse in an emerging country context where corporate governance system appears weak.