Capital Structure and Firm Performance: an Empirical Analysis of Listed Firms in China

This study investigates the relationship between the capital structure and the performance of firms through an analysis of Chinese listed firms. The regression results show short-term debt is an important component or source of financing for Chinese firms, representing 43.25 per cent of total debt financing. There is a statistically significant and positive relationship between short-term debt and return on assets, suggesting that profitable firms use more short-term debt to finance their operations. In addition, a negative relationship exists between long-term debt and return on assets. Finally, a statistically significant positive relationship exists between the total debt and return on assets. Overall, in China, profitable firms depend more on debt as their main financing option.