Investigating the determinants of capital leverage: the case of China's real estate sector Online publication date: Mon, 19-Oct-2020
by Korhan Gokmenoglu; Mohamad Kaakeh
International Journal of Economics and Business Research (IJEBR), Vol. 20, No. 3, 2020
Abstract: 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.
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