This paper investigates empirically how Chinese firms determine their debt equity ratios in recent 10 years.
We use data abtained from the firms listed in the Shanghai Stock Exchange and Shenzhen Stock Exchange, and
divide the sample into two periods, i.e., 1996−2000 and 2001−2005 to see if there is any change in the capital
structure in these firms. Our results show that there exist effects of industry factors on the debt ratios of Chinese
firms. However, the R−squared values are quite smaller than those in the USA and Japan. Our results also
indicate that size, profitability, growth, non−tax effect and cash flow are important determinants of financing
decisions in Chinese corporations, and in the period 2001−2005 growth becomes dominant factor, taking place
of profitability in the period 1996−2000.