The impact of debt on companies’ profitability in China

Abstract

As we all know, determining how much debt in the company’s capital structure is a complex task. This study aimed to find out the relationship between debt and the company’s profitability. We use the data from CSMAR more than 900 Chinese list companies from 1990 to 2017. We used regression and correlation analysis to find the impact of debt on the company. The Return on Assets is the measurement of profitability and the dependent variables; total debt to assets, short-term/long-term debt are independent variables. Size, growth opportunity and sales growth are control variables. The regression results indicated the total debt to assets ratio, and short-term debt ratio has a negative relationship with profitability. The long-term debt contributes very little negative impact on companies’ profitability.