Research Design

Research Topic

I. Determinant of Capital Structure of Listed Companies in China from 2011-2016

II. Research Questions

1) Factors that determine the capital structure of enterprisesfrom 2011-2016

III. Train of Thought

The following factors have been selected to study the impact on the capital structure of Chinese listed companies
Internal factors of enterprises:
Company characteristic factors

Factors that have been studied in the literatureare selected toverify whether these factors have yielded the same conclusion to Chinese listed companies.
1. Profitability
2. Tangibility
3. Size
4. Growth opportunities
5. Volatility
6. Non-debt tax shields

External factors of enterprises

1. China's special institution:
The Impact of Equity Structure - China's Special Institutional Factoron Capital Structure

III. Variable Settings (see excel file for details)

1. Dependent variable of explained variable (capital structure)
In this paper, book value is used to calculate the company's total assets; besides, three approaches are adopted to define the company's capital structure.The specific definition of capital structure is as follows

2. Independent variable of explaining variable

3. Instrumental variable

III. Research hypothesis

(1) The profitability of enterprise is negatively correlated to the capital structure.

(2) Tangible asset ratio is positively correlated to capital structure.

(3) The size of the enterprise is positively correlated to the capital structure.

(4) Growth opportunitiesare positivelycorrelated to capital structure.

(5) Income volatility is negatively correlated to capital structure

(6) Non-debt tax avoidance scale is negatively correlated to capital structure

(7) Industry factors have significant influence on capital structure

(8) The proportion of state-owned shares is negatively correlated to capital structure

IV. Sample selection and data sources

A. Sample selection(1-6havedone, only you do7 and 8 )

The listed companies that issue sharesin Shanghai and Shenzhen A-stock market from 2011to 2016 are chosen as objects of research, and the samples are processed before the empirical study according to the following steps:

(1) Listed companies in the financial and insurance industries are excluded, it is because the financial and insurance industry isusually managed with a loan, and its financial leverage is relative high, which will affect the research results of this paper;

(2)The GEM listed companies are excluded.It is because the liquiditychanges of stock market of GEM listed companies aregreat, which should not be used as study samples.

(3) ST, PT, or delisted companiesduring the sample period have been excluded. It is becausethe financial situation of companies that suffered from continuous deficitis bad, which has affected its normal financing decisions, so they shall not be included to the scope of this

(4) Companies that issue B-share, H-share, S-share and N-shareare excluded. It is because if the listed company issues A-share and B-shares or A-share and H-sharesimultaneously, the relationship of company's capital structure will becomecomplex. Not to mention the large differences of A-share, B-share and H-share in the market structure. In addition, taking into account the majority of listed companies in China's capital market issue A-share, while companies that issue B-share and H-share are relative less, coupled with the fact that differentstocktypes have different characteristics, if all of which are included in the scope of the sample, negative impact will be generated on the empirical results.Therefore, listed companies that issue only B-share, H-share, S-share and N-shareare also excluded. (remove the sample at the same time in the territory and overseas (sample companies that listed at both the domestic and overseas, such as the Hong Kong Stock Exchange and the New York Stock Exchange, are excluded.) The purpose of setting up the standard is to avoid the potential impact of institutional differences on empirical results. These institutional differences are mainly reflected in the development degree of the financing market and different legal provisions for the issuance of shares. (Wallance and Naser, 1995)

(5) Companieswith the asset-liability ratio of greater than 1 are excluded.It is because companies at this time have been insolvent andhave basically fallen into the delisting situation, which will affect the statistical results.

(6) Companies with incomplete variable data are excluded.

(7) Industrial samples with too little enterprises (<10) are excludedfrom this paper considering the impact of industrial factors on the capital structure.

(8) Key variables are processed withwinsorizationat thequantiles of 0 ~ 2.5% and 97.5% ~ 100%,in order to eliminate the adverse effects caused by extreme values (your assistance is needed in this regard)

V. Method (Establishment of empirical models)
Panel data is used to construct multiple linear regression models. On the basis of the selection methods of panel data model, F test, Hausman test and LM test are used to determine whether a pooled OLS model, a fixed effects model or a random effects model should be established.

Set up regression models based on the analysis
1. Paneldata panel data
Use paneldata to process sample data

2.Regression model
TD, LD, SD represent the total asset-liability ratio, the long-term asset-liability and current asset-liability ratio,respectively (this paper takes three measurement models to represent the capital structure, so there are formulas 2,3,4). Theabove three models are regressed.

3. Endogenous treatment
Explain what method should be used for endogenous treatment
Generally, instrumental variable method is used to consider endogeneity, in other words,avariable constructive tool that is relevant to endogenous variable but irrelevant to dependentvariable is searched to eliminate endogenous problems.
The following can be referred to:

4. Robustness Test

VI. Analysis
1. Descriptive statistics
Sample distribution
A statistical description of the sample
2. Correlation analysis
3. Regression analysis
4. Endogenous test (growth, profitability and size also have intrinsic relationships with the capital structure)
The introduction of instrumental variable
5. Robustness test

The following needs to pay attention to:
1. All materials during the whole process arerequired

Attachment:- sample data.rar