Credit expansion, state ownership and capital structure of Chinese real estate companies
| Date | 04 April 2016 |
| Published date | 04 April 2016 |
| DOI | https://doi.org/10.1108/JPIF-09-2015-0067 |
| Pages | 263-275 |
| Author | Jianfu Shen,Xianting Yin |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
Credit expansion, state
ownership and capital structure
of Chinese real estate companies
Jianfu Shen
Economics and Finance Department, Hang Seng Management College,
Hong Kong, and
Xianting Yin
School of Law, City University of Hong Kong, Hong Kong
Abstract
Purpose –The purpose of this paper is to explore the impact of the credit expansion in 2009 and 2010
in China on the capital structure of listed real estate companies.
Design/methodology/approach –Chinese listed real estate companies are divided into two groups,
state-owned and non-state-owned, because their access to credit markets have different priority to
state-owned banks that dominate bank lending. The difference-in-differences approach is employed to
test the impact of changes in leverage ratios and loan ratios before and after the credit expansion
period in state-owned firms and non-state-owned firms.
Findings –Using quarterly panel regressions, the authors find that during the credit expansion
period, state-owned companies exhibit a relatively greater increase in leverage ratios than non-state-
owned firms. State-owned firms have greater increases in book leverage ratios, market leverage ratios
and long-term debt ratios by 5.2, 4.9 and 1.1 per cent, respectively. It is also shown that loan ratios have
increased more in state-owned firms than non-state-owned firms during the credit expansion period.
Research limitations/implications –The paper explores only the impacts of credit expansion on
capital structureof listed real estate firms in China. Further studies can be conducted to investigate the
impact of creditsupply on corporate investmentdecisions of real estate firmsand on real estate markets.
Practical implications –The findings can help explain the surge in land and housing prices after 2008
in China. Deng et al. (2015) find that state-owned real estate firms paid more for land price than
non-state-owned firms, which contributed to upward pressure on housing prices. This paper shows that
such “over-investment”may be due to the increase of debt financing and availability of bank loans to real
estate firms. Thus the credit market can affect real estate markets through debt financing at company level.
Originality/value –This paper is the first to investigate the impact of credit supply on capital
structure of real estate companies, and presents evidence of the importance of credit supply as a
determinant of capital structure.
Keywords Leverage, State ownership, Access to credit market, Bank loan supply,
Borrowings, Credit expansion
Paper type Research paper
1. Introduction
A newly developing field of study in capital structure theory argues that credit supply,
other than only demand side factors in traditional theories, also influences the capital
structure of a company (see the survey in Graham and Leary, 2011). The evidence is not
unequivocal, however, and thus the supply side theory is still debatable. For instance,
Leary (2009) finds that bank-dependent firms increase (decrease) leverage ratios more than
firms with access to bond markets following periods of credit expansion (contraction) in the
economy. On the other hand, though, Kahle and Stulz (2013) show that net debt financing
does not decrease more in bank-dependent firms than their bond market counterparts in
the 2007 credit crisis when credit supply contracted substantially. Our study aims to
Journal of Property Investment &
Finance
Vol. 34 No. 3, 2016
pp. 263-275
©Emerald Group Publis hing Limited
1463-578X
DOI 10.1108/JPIF-09-2015-0067
Received 26 September 2015
Revised 28 November 2015
Accepted 24 December 2015
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1463-578X.htm
263
Credit
expansion
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