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

China Finance and Economic Review

Table 5 Regression output for non-state-owned enterprises

	OLS	GLS fixed-effects	GMM1	GMM2
LEV(L1)			0.6381***	0.5994***
LEV(L1)			−0.0315	−0.0569
PROF	−0.0518**	−0.0510**	−0.0423*	−0.0514**
PROF	−0.016	−0.0158	−0.0275	−0.0275
SIZE	0.0410***	0.0393***	0.0312***	0.0301***
SIZE	−0.0022	−0.0033	−0.0066	−0.0071
NWC	−0.051***	−0.0393**	−0.0063	−0.014
NWC	−0.0092	−0.0117	−0.0207	−0.0213
OC5%	−0.0048**	−0.0033**	−0.0004	−0.0009
OC5%	−0.0011	−0.0013	−0.0019	−0.002
NDTS	−0.0005	−0.0005	−0.0523	−0.0753
NDTS	−0.0003	−0.0004	−0.1607	−0.1608
BSIZE	−0.0059	−0.0008	−0.0004	−0.0002
BSIZE	−0.0017	−0.0016	−0.0004	−0.0004
MTB	0.0008***	0.0007	0.0014	0.0016
MTB	−0.0008	−0.0007	−0.0021	−0.002
TR	−0.0007	−0.5752	−0.0004	0.0002
TR	−0.0309	−0.0428	−0.0012	−0.0011
INDLEV	0.64***	0.573***	0.4519***	0.4642***
INDLEV	−0.0147	−0.0296	−0.077	−0.0798
LNDLIQ	−0.004	−0.1031**	−0.0142	−0.0174
LNDLIQ	−0.1449	−0.115	−0.0383	−0.0393
INDHHI	−0.050***	−0.0319***	−0.0056	−0.0053
INDHHI	−0.0038	−0.0055	−0.0072	−0.0072
GDP	0.0004*	0.0022**	0.0020*	0.0019**
GDP	−0.0009	−0.0008	−0.0011	−0.0011
INFL	−0.0001	−0.0003	−0.0008**	−0.0007
INFL	−0.0007	−0.0006	−0.0005	−0.0005
LR	−0.0007	−0.0085**	−0.0038	−0.0039
LR	−0.003	−0.0026	−0.0027	−0.0027
Constant	−0.4816	−0.523	−0.6262	−0.5921
Adj R	0.2726	0.2461
F Stat	113.56	41.34
Abond test
Wald chi²			730.58***	194.9***
Sargan test			0.397	0.418
Hausman test		49.32***

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