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Corruption, financial development and capital structure: evidence from China

Corruption, financial development and capital structure: evidence from China PurposeThis paper takes listed companies in the Shanghai and Shenzhen stock markets from 1998 to 2013 as a research sample, investigating the role played by corruption and financial development, along with the interactions between the two, in determining the factors of a company’s capital structure in China’s legal environment. The paper aims to discuss these issues.Design/methodology/approachUsing data of listed companies and the regional level of China during 1998-2013 and the STATA process (xtabond2 command) developed by Roodman (2006) to implement the two-step GMM estimation, empirically investigate the effect of interactions between corruption and financial development on a company’s capital structure in Chinese legal environment.FindingsAfter both controlling for China’s legal environment, a company’s internal factors, and industry factors and considering endogeneity problems, the results show that corruption and financial development have significant positive influences on a company’s bank loans. However, when investigating the interactions between corruption and financial development, the authors find that financial development does not increase a company’s bank loans in areas with a higher level of corruption. However, corruption and financial development have insignificant influences on a company’s long-term bank loans.Research limitations/implicationsThe findings in this study suggest that a company’s capital structure was affected not only by the company’s internal factors and industry factors, but also by the company’s external factors, and the interactions between these factors.Practical implicationsTo improve the financing circumstances of company credit, the next point of reform should be to improve their procedures for administrative examination and approval of bank creditors and strengthen the punishment and prevention of credit and judicial corruption to weaken the negative effects of corruption on firms’ capital structure decisions.Originality/valueThis study uses only Chinese listed companies, and considers the influence of the interaction of corruption and financial development on a company’s capital structure decisions. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png China Finance Review International Emerald Publishing

Corruption, financial development and capital structure: evidence from China

Wei, Feng; Kong, Yu
China Finance Review International , Volume 7 (3): 28 – Aug 21, 2017
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28 pages

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
2044-1398
DOI
10.1108/CFRI-10-2016-0116
Publisher site
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Abstract

PurposeThis paper takes listed companies in the Shanghai and Shenzhen stock markets from 1998 to 2013 as a research sample, investigating the role played by corruption and financial development, along with the interactions between the two, in determining the factors of a company’s capital structure in China’s legal environment. The paper aims to discuss these issues.Design/methodology/approachUsing data of listed companies and the regional level of China during 1998-2013 and the STATA process (xtabond2 command) developed by Roodman (2006) to implement the two-step GMM estimation, empirically investigate the effect of interactions between corruption and financial development on a company’s capital structure in Chinese legal environment.FindingsAfter both controlling for China’s legal environment, a company’s internal factors, and industry factors and considering endogeneity problems, the results show that corruption and financial development have significant positive influences on a company’s bank loans. However, when investigating the interactions between corruption and financial development, the authors find that financial development does not increase a company’s bank loans in areas with a higher level of corruption. However, corruption and financial development have insignificant influences on a company’s long-term bank loans.Research limitations/implicationsThe findings in this study suggest that a company’s capital structure was affected not only by the company’s internal factors and industry factors, but also by the company’s external factors, and the interactions between these factors.Practical implicationsTo improve the financing circumstances of company credit, the next point of reform should be to improve their procedures for administrative examination and approval of bank creditors and strengthen the punishment and prevention of credit and judicial corruption to weaken the negative effects of corruption on firms’ capital structure decisions.Originality/valueThis study uses only Chinese listed companies, and considers the influence of the interaction of corruption and financial development on a company’s capital structure decisions.

Journal

China Finance Review International – Emerald Publishing

Published: Aug 21, 2017

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