Determinants of the capital structure of Chinese non-listed enterprises: Is TFP efficient?

- This paper investigates the relationship between TFP (Total Factor Productivity) and leverage of Chinese non-listed firms during 1999-2007.
- Our research offers new evidence that TFP is another important measurement of firm performance and can determine the capital structure.
- TFP is significantly and positively associated with leverage of private and foreign owned enterprises, but insignificantly correlated with state-owned enterprises.
- Financial constraints, leverage costs, and the institutional environment can affect the relation between TFP and leverage.
- TFP also plays a significant and positive role for formal and informal leverage.

This paper investigates the relationship between TFP (Total Factor Productivity) and leverage measures (total, short-term and long-term leverage) of Chinese non-listed firms during the period 1999-2007. First, TFP is significantly and positively associated with the three leverage measures of private and foreign owned enterprises, but insignificantly correlated with state-owned enterprises. Second, financial constraints, leverage costs, and the institutional environment can affect the relation between TFP and leverage; this relation tends to be much stronger when enterprises face stronger financial constraints, higher leverage costs, and an underdeveloped institutional environment. Third, we show that TFP also plays a significant and positive role on formal and informal leverage. Our research offers new evidence that TFP is an important determinant of capital structure choices.