Title: On the influence of high leverage ratio on Chinese firms' performance: A semiparametric approach
Authors: Jinjing Tian - Dongbei University of Finance and Economics (China) [presenting]
Taining Wang - Capital University of Economics and Business (China)
Feng Yao - West Virginia University (United States)
Abstract: Excessive leverage ratio of Chinese firms has raised concerns over its impact on productive efficiency. We employ a rm-level data set over 1998-2007 to investigate the role of debt in both the rm's production frontier and technical efficiency. The impact of debt on frontier is decomposed into a stand-alone neutral effect and indirect non-neutral effects, which alter the marginal product of production inputs. We estimate the effects through a semiparametric smooth coefficient stochastic frontier model. We allow a non-zero probability for the firms to be fully efficient, and model it as a function of debt and technical progress represented by time. We find that an increase in debt significantly reduces firms' frontier across different ownership, regions, and industries. Foreign and private firms are more efficient, with their full efficiency probability increased by debt and technical progress. In contrast,state-owned enterprises(SOEs) and collective firms are much less efficient and their probability of being fully efficient is not likely to increase with more debt. Furthermore, lower efficiency levels are concentrated in both the central and western regions, as well as in the mining and public utility industries.