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

Authors: Korhan Gokmenoglu; Mohamad Kaakeh

Addresses: Department of Banking and Finance, Eastern Mediterranean University, Famagusta, North Cyprus via Mersin 10, Turkey ' Department of Banking and Finance, Eastern Mediterranean University, Famagusta, North Cyprus via Mersin 10, Turkey

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.

Keywords: SEM; structural equation modelling; capital structure; leverage; real estate sector; Chinese firms; trade-off theory; picking order theory.

DOI: 10.1504/IJEBR.2020.110437

International Journal of Economics and Business Research, 2020 Vol.20 No.3, pp.288 - 309

Received: 18 Jun 2019
Accepted: 18 Feb 2020

Published online: 05 Oct 2020 *

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