How do Chinese firms adjust their financial leverage: an empirical investigation using multiple GMM models

China Finance and Economic Review

Table 3 Regression output for overall firms

	OLS	GLS fixed-effects	GMM1	GMM2
LEV(L1)			0.675***	0.70***
LEV(L1)			−0.0204	−0.0335
PROF	−0.0331***	−0.023***	−0.048**	−0.05**
PROF	−0.0094	−0.0086	−0.0192	−0.0203
SIZE	0.0434***	0.0453***	0.026***	0.02***
SIZE	−0.0016	−0.0022	−0.0044	−0.0048
NWC	−0.0402***	−0.0246**	0.0029	0.0038
NWC	−0.0065	−0.0079	−0.0165	−0.017
OC5%	−0.0036***	−0.0012**	−0.0024	−0.0024
OC5%	−0.0008	−0.0009	−0.0014	−0.0015
NDTS	−0.0066	−0.1055	−0.2677**	−0.27**
NDTS	−0.0584	−0.0733	−0.1539	−0.1705
BSIZE	0.0004*	0.0008**	0.0003	0.0005
BSIZE	−0.0002	−0.0003	−0.0003	−0.0003
MTB	0.0059***	0.0017	0.0036**	0.0025*
MTB	−0.0012	−0.0011	−0.0014	−0.0015
TR	0.0019**	0.0015**	0.0001	0.0001
TR	−0.0007	−0.0006	−0.0006	−0.0006
INDLEV	0.6364***	0.5375***	0.365***	0.37***
INDLEV	−0.0222	−0.0295	−0.0631	−0.0657
LNDLIQ	−0.0048	−0.0508*	−0.0454	−0.0284
LNDLIQ	−0.0103	−0.0202	−0.0325	−0.0347
INDHHI	−0.0540***	−0.0394**	−0.018**	−0.01**
INDHHI	−0.0027	−0.0037	−0.0061	−0.0064
GDP	0.0003	0.0022***	0.003***	0.003***
GDP	−0.0007	−0.0006	−0.0007	−0.0007
INFL	−0.0008	−0.0008**	−0.0001	−0.0001
INFL	−0.0005	−0.0004	−0.0004	−0.0004
LR	−0.0019	−0.006***	−0.009***	−0.009***
LR	−0.0021	−0.0018	−0.002	−0.0021
Constant	−0.5308	−0.6217	−0.4935	−0.49
Adj R	0.3015	0.2608
F Stat	120.73	94.62
Abond test			0.7901
Wald chi²			2092.9**	593.0***
Sargan test			0.531	0.375
Hausman test		47***

Standard errors are given in parentheses
*, **, ***Show significance at 90, 95, and 99%, respectively
LEV is the leverage measured through the ratio of debt to asset. PROF is the profitability measured through the ratio of return on equity. SIZE is the firm’s size measured through natural log of firm’s asset. NWC is the networking capital used as a proxy for a firm’s liquidity. OC5% is the ownership concentration. NDTS is thenon-debt tax shield measured through the proportion of the sum of amortization and depreciation to total assets. BSIZE is the board size measured through number of directors on a firm’s board of directors. MTB is the market to book ratio used as a proxy for growth oppurtunities. TR is the tax to earnings ratio used a proxy for corporate tax rate, and it is measured as proportion of taxes to earnings before taxes. INDLEV is the median industry leverage as median of total debt to total asset ratios of involved companies in an industry. INDLIQ is the industry liquidity. INDHHI is Herfindahl–Hirschman Index (HHI) as the sum of the squares of a firm’s sales to an industry’s total sales. GDP is the real annual gross domestic product. INFL is the inflation rate in China. LR is the lending rate in China