Title: 'Lower leverage puzzle' in China's listed firms: an empirical study based on firm efficiency

Authors: Xindong Zhang; Ling Ni; Yiping Chen

Addresses: School of Management, Shanxi University, No. 92, Wucheng Road, Taiyuan, Shanxi, 030006, China. ' BDO China Xu Lun Pan Certified Public Accountants LLP, Shanghai, 200002, China. ' School of Economic and Business Administration, Shanxi University, No. 92, Wucheng Road, Taiyuan, Shanxi, 030006, China

Abstract: This paper attempts to interpret 'lower leverage puzzle' in China's listed firms from the perspective of firm efficiency. It investigates the relationship between firm efficiency and capital structure based on a sample study of 1,000 firm-year panel data of public firms in Shanghai Stock Exchange from 2004-2008. The findings show that between them two there exists a significant reversal exponential relationship, and also indicate that the 'lower leverage' is practically a natural choice of higher efficiency firms. Furthermore, it is suggested that the development stage of security market should be taken into consideration of the capital structure theory.

Keywords: enterprise development; capital structure; long-term debt ratio; lower leverage puzzle; heteromorphy; firm efficiency; stochastic frontier analysis; SFA; reversal exponential relationship; development stages; developing security markets.

DOI: 10.1504/IJMED.2012.046793

International Journal of Management and Enterprise Development, 2012 Vol.12 No.1, pp.54 - 72

Published online: 06 Sep 2014 *

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