Ownership-control rights divergence, government intervention and choice of capital structure Empirical evidence from listed companies in China

Purpose - The purpose of this paper is to empirically test how ultimate controlling shareholders' ownership-control rights divergence and government intervention affect choice of capital structure (CS), and how the relationship between controlling shareholders' ownership-control rights divergence and choice of CS is affected by government intervention. Design/methodology/approach - Integrating the institutional background of China, the paper adopts balanced panel data containing related continuously obtainable information of 1,076 non-financial companies listed in Shanghai and Shenzhen from 2004 to 2008 (a total of 5,380 observed values), and applies a series of generalised least squares to empirically test how ultimate controlling shareholders' ownership-control rights divergence and government intervention affect choice of CS, and how the relationship between controlling shareholders' ownership-control rights divergence and choice of CS is affected by government intervention. Findings - The empirical evidence provided by this paper indicates that: controlling shareholders' ownership-control rights divergence is negatively correlated with leverage; government intervention is positively correlated with leverage; and government intervention will weaken the negative relationship between controlling shareholders' ownership-control rights divergence and leverage, and make debt capital suppliers (especially financial institutions like banks, etc.) provide loans, especially long-term ones, to companies with high ownership-control rights divergence. Originality/value - So far, it is still little-known how ownership-control rights divergence affects choice of CS and how government intervention affects the relationship between ownership and control rights divergence and choices of CS. This paper is the first to test how ultimate controlling shareholders' ownership-control rights divergence and government intervention affect choice of CS, and how the relationship between controlling shareholders' ownership-control rights divergence and choice of CS is affected by government intervention based on the institutional background of China.