Investigating the determinants of capital leverage: The case of China's real estate sector


International Journal of Economics and Business Research, vol.20, no.3, pp.288-309, 2020 (Scopus) identifier

  • Publication Type: Article / Article
  • Volume: 20 Issue: 3
  • Publication Date: 2020
  • Doi Number: 10.1504/ijebr.2020.110437
  • Journal Name: International Journal of Economics and Business Research
  • Journal Indexes: Scopus, EconLit, INSPEC
  • Page Numbers: pp.288-309
  • Keywords: Capital structure, Chinese firms, Leverage, Picking order theory, Real estate sector, SEM, Structural equation modelling, Trade-off theory
  • Ankara Haci Bayram Veli University Affiliated: Yes


Copyright © 2020 Inderscience Enterprises Ltd.This study empirically investigated the determinants of capital leverage of the Chinese real estate sector. Annual panel data of 130 companies covering the period 2007-2017 were used. Profitability was treated as a latent variable to avoid any specification error. Structural equation modelling (SEM) confirmed that while the size and financial cost have a significant positive effect on the level of capital leverage; liquidity, tangibility, and non-debt tax shield (NTDS) have a significant negative effect. The findings provide supportive evidence for both the trade-off theory and the pecking order theory. An interesting outcome of our research is that despite the substantial difference in institutional structure between China and Western countries, the firm-specific determinants of leverage are partially similar between the two. The policy implications of our research are discussed in the conclusion section.