Institutional Ownership and Capital Structure --Evidence from China Listed Companies

In this paper, we study the relationship between institutional ownership and capital structure. Based on the principle of minimizing financing cost, this paper firstly constructs a dynamic optimizing model of capital structure from the angle of institutional ownership. Then, it uses panel data of 539 China listed companies of manufacturing industry from 2005 to 2007 to make regression of fixed effects model. The results indicate that the percentage of institutional stock holdings has positive relation with capital structure, and the decentralized degree of institutional ownership is negatively related to capital structure. The robustness check agrees with these results. Finally, this paper points that developing institutional investors is one way to solve the current low debt ratio of China listed companies.