Product Market Competition and Capital Structure: Evidence from Listed Companies in China

This paper gives a panel-model study on the data of 547 listed companies in China from 2005 to 2007 and draws a conclusion that in China capital market, the capital structure of listed companies in different industries which have dissimilar competition of product market reveals significant diversity. Moreover, the relation between product market competition and capital structure presents positive, which means that listed companies who face drastic competition will select high debt ratio, while those whose competition is weak will select low debt ratio. At last, this paper also points that the decision of capital structure is not only a financial problem. It must be consistent with the company´s competition strategy of product market.