Company Ownership, Debt Levels and Credit Allocation Efficiency: The Case of China

Abstract: This thesis examines the extent to which firm ownership matters for Chinese domiciled firms’ access to long-term debt funding on the one hand, and long-term credit allocation efficiency in China on the other. In order to do this, panel regressions on company capital structures and credit allocation efficiency are performed, using a dataset covering 15,682 firms over three years. In contrast to some previous findings, the empirical results of this study gives little indication that either firms’ access to long-term debt funding or the efficiency of long-term credit allocation would be systematically influenced by firm ownership. The exception is firms with foreign ownership, which have less access to long-term debt and to which long-term credit is relatively inefficiently allocated compared to firms of other ownership categories. Given these results, it seems that access to long-term debt given ownership is not an important determinant of growth for most firms in China, as more debt does not translate into higher growth. Moreover, considering the overall low long-term debt levels of Chinese domiciled companies, the theories of capital allocation efficiency and the law-finance-growth nexus, long-term credit markets in China seem to have some way to go before they can be considered to be functioning satisfactorily.