Testing the influence of capital structure on corporate profitability of Chinese listed companies

Abstract

This study investigates the impact of capital structure on the profitability of non-financial listed companies in China for the period between 2010 and 2014. The entire sample data includes 571 companies from 12 different industries. The study builds a panel-data model for the data, use both linear model and quadratic model to test the relationship between capital structure and profitability. Through correlation and regression analysis, the study finds that the relationship between total debt-asset ratio and profitability is negative, and relationship between long-term debt to total debt ratio and profitability is positive. Moreover, the quadratic model indicates that the evidence of optimal capital structure exist in the Chinese capital market.