This study examines the determinants of capital structure in Chinese firms both theoretically and empirically. Important theoretical determinants of capital structure include income taxes through the income tax shield, agency costs and benefits, and the costs of financial distress, among other factors. With regards to emerging markets, China specifically, changes are made to the theoretical model focused more on developed economies, as these models more closely resemble perfect capital markets. Chinese corporate tax laws are also considered. In addition, relevant literature is summarized. An empirical model is developed using a cross-section of 30 of the 93 Chinese firms listed on major US exchanges. A cross-sectional ordinary least squares (OLS) regression is used to examine the effects of several independent variables on choice of financing, controlling for certain firm characteristics. Tax rate proves to be surprisingly insignificant, however asset tangibility, growth opportunities, non-debt tax shields, and size prove to be significant, though not always in expected ways. The results question the empirical validity of certain theories, also having policy implications for both firms and governments.


Jia, Bijie


Business Economics


Corporate Finance | International Business

Publication Date


Degree Granted

Bachelor of Arts

Document Type

Senior Independent Study Thesis



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