An Analysis of the Effect of Asset Liquidity on Capital Structure of Public Companies

Abstract

In this thesis, our main aim is to investigate whether there is a significant correlation between the capital structure and asset liquidity, with other firm-level characteristics such as asset tangibility and profitability added to extend the past studies. Firstly, we describe the causes, theories and development of recent financial crisis, which help us to understand the importance of asset liquidity overall. Secondly, we describe the past research of the relationship between the capital structure and asset liquidity. Also, we introduce the influencing factors of capital structure. Lastly, we select firms’ capital structure, liquidity, asset tangibility, profitability indicators to construct a multiple linear regression model, the data we use is from the annual reports of Chinese listed firms operating in real estate industry during the 2013 to 2017 period. After that, we perform pooled Ordinary Least Squares (OLS), fixed effects analysis, and random effect analyses on the panel data of the regression model, and we use Hausmann test for both fixed effects and random effects models to decide which model we should use.