Study on the Influence of Institutional Ownership on Capital Structure of China Listed Companies

Abstract

With the recent years' development, institutional investors have played a more important role in corporate governance and operational decisions of China listed companies. However, the empirical research on the influence of institutional ownership on capital structure is rare. Based on the principle of minimizing financing cost, this paper constructs a dynamic optimizing model of capital structure from the angle of institutional ownership. We also use panel data of 568 China listed companies of manufacturing industry from 2002 to 2004 to make regression of fixed effects model. The evidences indicate that the percentage of institutional stockholdings has positive relation with capital structure, which means the debt ratio increases when the percentage of institutional stockholdings increases. We also find that the decentralized degree of institutional ownership is negatively related to capital structure, that is, a more decentralized degree of institutional ownership causes a lower debt ratio.