You are not currently logged in.
Access JSTOR through your library or other institution:
Capital Structure in Transition: The Transformation of Financial Strategies in China's Emerging Economy
Lisa A. Keister
Vol. 15, No. 2 (Mar. - Apr., 2004), pp. 145-158
Published by: INFORMS
Stable URL: http://www.jstor.org/stable/30034720
Page Count: 14
You can always find the topics here!Topics: Bank loans, Capital structure, Bank capital, Capital management, Retained earnings, Economic capital, Economic transitions, Finance, Trajectories, Banking reforms
Were these topics helpful?See somethings inaccurate? Let us know!
Select the topics that are inaccurate.
Preview not available
During economic transition, firms must dramatically reduce their financial dependence on the state and begin to borrow from nonstate capital sources. This paper draws on institutional and resource dependence theories to examine this fundamental transformation of firm capital structure during China's transition. I propose that managers borrowed from external sources even when internal funds were available because retained earnings were considered state assets. Firms used retained earnings to signal financial health but borrowed externally to reduce dependence on the state. Uncertainty during transformation produced interfirm imitation of borrowing strategies, particularly imitation of local and high status others. I argue that the dynamics of market development shaped firm borrowing strategies and that these strategies are best viewed as trajectories over time. Analysis of survey data on the 1980-1989 capital structure of formerly state-owned firms provides support for these arguments and highlights the importance of institutional context in understanding corporate borrowing and strategic decision making.
Organization Science © 2004 INFORMS