Capital structure and financial distress in China's real estate sector: a perspective from sales tournament

Edward Chan; Eddie C. M. Hui; Jianfu Shen; Liya Zhang

doi:10.1057/s41599-025-05154-7

Capital structure and financial distress in China's real estate sector: a perspective from sales tournament

Edward Chan
, Eddie C. M. Hui
, Jianfu Shen^*
, Liya Zhang

^*Corresponding author for this work

Department of Public and International Affairs

Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review

5 Citations (Scopus)

7 Downloads (CityUHK Scholars)

Abstract

The real estate sector in China has long been characterized by excessive leverage and over-investment, which culminated in widespread defaults since 2021. Given that credit in China is more readily extended to large developers, this study explores how sales tournaments, a competitive, race-to-the-top behavior, shape capital structure decisions, investment patterns, and financial distress in China’s real estate market. Using a sample of listed real estate developers from 2013–2022, our findings reveal that developers who achieve higher sales rankings significantly increase their debt ratios. This effect remains robust in a Regression Discontinuity analysis, Propensity Score Matching (PSM) analysis, as well as using alternative sales tournament and leverage measures. Moreover, the positive impact of sales rankings on debt ratios is pronounced for non-state-owned enterprises but not for state-owned ones. Further analysis shows that developers appearing in sales rankings exhibit higher investment growth than their counterparts outside the rankings. Additionally, developers who climb the sales ranking are more likely to experience financial distress during industry downturns. This study contributes to capital structure theories by offering new insights into the financing decisions of Chinese real estate developers. © The Author(s) 2025.

Original language	English
Article number	885
Journal	Humanities and Social Sciences Communications
Volume	12
Online published	20 Jun 2025
DOIs	https://doi.org/10.1057/s41599-025-05154-7
Publication status	Published - 2025

Bibliographical note

Full text of this publication does not contain sufficient affiliation information. With consent from the author(s) concerned, the Research Unit(s) information for this record is based on the existing academic department affiliation of the author(s).

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 17 Partnerships for the Goals

Publisher's Copyright Statement

This full text is made available under CC-BY-NC-ND 4.0. https://creativecommons.org/licenses/by-nc-nd/4.0/

Access Output

10.1057/s41599-025-05154-7

305324198.pdfFinal Published version, 635 KBLicence: CC BY-NC-ND

Other Access Options

Check CityUHK Library

Permanent Link

Right click to copy link

Cite this

@article{695a1a6faa6b41aa92a1c911643fac7e,

title = "Capital structure and financial distress in China's real estate sector: a perspective from sales tournament",

abstract = "The real estate sector in China has long been characterized by excessive leverage and over-investment, which culminated in widespread defaults since 2021. Given that credit in China is more readily extended to large developers, this study explores how sales tournaments, a competitive, race-to-the-top behavior, shape capital structure decisions, investment patterns, and financial distress in China{\textquoteright}s real estate market. Using a sample of listed real estate developers from 2013–2022, our findings reveal that developers who achieve higher sales rankings significantly increase their debt ratios. This effect remains robust in a Regression Discontinuity analysis, Propensity Score Matching (PSM) analysis, as well as using alternative sales tournament and leverage measures. Moreover, the positive impact of sales rankings on debt ratios is pronounced for non-state-owned enterprises but not for state-owned ones. Further analysis shows that developers appearing in sales rankings exhibit higher investment growth than their counterparts outside the rankings. Additionally, developers who climb the sales ranking are more likely to experience financial distress during industry downturns. This study contributes to capital structure theories by offering new insights into the financing decisions of Chinese real estate developers. {\textcopyright} The Author(s) 2025.",

author = "Edward Chan and Hui, \{Eddie C. M.\} and Jianfu Shen and Liya Zhang",

note = "Full text of this publication does not contain sufficient affiliation information. With consent from the author(s) concerned, the Research Unit(s) information for this record is based on the existing academic department affiliation of the author(s).",

year = "2025",

doi = "10.1057/s41599-025-05154-7",

language = "English",

volume = "12",

journal = "Humanities and Social Sciences Communications",

issn = "2662-9992",

publisher = "Springer Nature",

}

TY - JOUR

T1 - Capital structure and financial distress in China's real estate sector

T2 - a perspective from sales tournament

AU - Chan, Edward

AU - Hui, Eddie C. M.

AU - Shen, Jianfu

AU - Zhang, Liya

N1 - Full text of this publication does not contain sufficient affiliation information. With consent from the author(s) concerned, the Research Unit(s) information for this record is based on the existing academic department affiliation of the author(s).

PY - 2025

Y1 - 2025

N2 - The real estate sector in China has long been characterized by excessive leverage and over-investment, which culminated in widespread defaults since 2021. Given that credit in China is more readily extended to large developers, this study explores how sales tournaments, a competitive, race-to-the-top behavior, shape capital structure decisions, investment patterns, and financial distress in China’s real estate market. Using a sample of listed real estate developers from 2013–2022, our findings reveal that developers who achieve higher sales rankings significantly increase their debt ratios. This effect remains robust in a Regression Discontinuity analysis, Propensity Score Matching (PSM) analysis, as well as using alternative sales tournament and leverage measures. Moreover, the positive impact of sales rankings on debt ratios is pronounced for non-state-owned enterprises but not for state-owned ones. Further analysis shows that developers appearing in sales rankings exhibit higher investment growth than their counterparts outside the rankings. Additionally, developers who climb the sales ranking are more likely to experience financial distress during industry downturns. This study contributes to capital structure theories by offering new insights into the financing decisions of Chinese real estate developers. © The Author(s) 2025.

AB - The real estate sector in China has long been characterized by excessive leverage and over-investment, which culminated in widespread defaults since 2021. Given that credit in China is more readily extended to large developers, this study explores how sales tournaments, a competitive, race-to-the-top behavior, shape capital structure decisions, investment patterns, and financial distress in China’s real estate market. Using a sample of listed real estate developers from 2013–2022, our findings reveal that developers who achieve higher sales rankings significantly increase their debt ratios. This effect remains robust in a Regression Discontinuity analysis, Propensity Score Matching (PSM) analysis, as well as using alternative sales tournament and leverage measures. Moreover, the positive impact of sales rankings on debt ratios is pronounced for non-state-owned enterprises but not for state-owned ones. Further analysis shows that developers appearing in sales rankings exhibit higher investment growth than their counterparts outside the rankings. Additionally, developers who climb the sales ranking are more likely to experience financial distress during industry downturns. This study contributes to capital structure theories by offering new insights into the financing decisions of Chinese real estate developers. © The Author(s) 2025.

UR - https://www.webofscience.com/wos/woscc/full-record/WOS:001512356500002

UR - https://www.scopus.com/pages/publications/105008547418

UR - https://www.scopus.com/pages/publications/105008547418#tab=impact

U2 - 10.1057/s41599-025-05154-7

DO - 10.1057/s41599-025-05154-7

M3 - RGC 21 - Publication in refereed journal

SN - 2662-9992

VL - 12

JO - Humanities and Social Sciences Communications

JF - Humanities and Social Sciences Communications

M1 - 885

ER -

Capital structure and financial distress in China's real estate sector: a perspective from sales tournament

Abstract

Bibliographical note

UN SDGs

Publisher's Copyright Statement

Access Output

Other Access Options

Permanent Link

Other Files and Links

Fingerprint

Cite this