Capital Structure and Firm Growth in China

Abstract

Using dynamic GMM method with data from 2003 to 2015, we propose a growth hypothesis of capital structure of Chinese firms, that is, higher growth leads to higher financial leverage. The paper further investigates the impact of external financing constraints on the relationship of growth and leverage, and shows that the firm with tighter financing constraints has a stronger relation between growth and leverage. Finally, the robustness test is conducted in the high-tech industries with financial constraints and high growth. The conclusions of this paper have important implications for both the listed firms and the market regulators.