The Practical Applicability of Capital Structure Theories: A Comparative Study of Jd.com and Alibaba Group
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The Practical Applicability of Capital Structure Theories: A Comparative Study of Jd.com and Alibaba Group

Yiwen Wang 1*
1 Renmin University of China
*Corresponding author: 13911953423@163.com
Published on 6 August 2025
Journal Cover
AEMPS Vol.208
ISSN (Print): 2754-1177
ISSN (Online): 2754-1169
ISBN (Print): 978-1-80590-315-4
ISBN (Online): 978-1-80590-316-1
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Abstract

This paper explores the real-world applicability of capital structure theories by comparing two representative Chinese firms: JD.com and Alibaba. Using financial indicators and theoretical alignment, the study examines how the Trade-off Theory and Pecking Order Theory explain each firm’s financial behavior under varying corporate conditions. The comparative analysis focuses on debt structure, interest coverage, cash flow patterns, and governance models. Findings show that JD.com’s stable cash flow, asset intensity, and centralized governance align with the Trade-off Theory, while Alibaba's strong internal cash flow, asset-light operations, and sensitivity to control dilution reflect the logic of the Pecking Order Theory. These results highlight that capital structure decisions are highly context-specific and must correspond to a firm’s financial profile, risk tolerance, and strategic priorities. The study emphasizes that no single capital structure theory is universally applicable; rather, firms should adopt a contextual approach that balances cost efficiency with organizational stability. These insights contribute to a more nuanced understanding of corporate financing strategy and offer practical guidance for companies facing diverse financial and governance environments.

Keywords:

Capital structure theory, Trade-off theory, Pecking order theory

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Wang,Y. (2025). The Practical Applicability of Capital Structure Theories: A Comparative Study of Jd.com and Alibaba Group. Advances in Economics, Management and Political Sciences,208,15-23.

References

[1]. Modigliani F, Miller MH. (1958) The cost of capital, corporation finance and the theory of investment. Am Econ Rev, 48(3): 261–297.

[2]. Fama EF, French KR. (2002) Testing trade-off and pecking order predictions about dividends and debt. Rev Financ Stud, 15(1): 1–33.

[3]. Chen JJ. (2004) Determinants of capital structure of Chinese-listed companies. J Bus Res, 57(12): 1341–1351.

[4]. Rajan RG, Zingales L. (1995) What do we know about capital structure? Some evidence from international data. J Finance, 50(5): 1421–1460.

[5]. Titman S, Wessels R. (1988) The determinants of capital structure choice. J Finance, 43(1): 1–19.

[6]. JD.com, Inc. Annual Report on Form 20-F for the fiscal year ended December 31, 2023. United States Securities and Exchange Commission; 2024 Apr 18. Available from: https: //ir.jd.com

[7]. Alibaba Group Holding Limited. Annual Report for Fiscal Year 2023. Hong Kong: Alibaba Group; 2023. Available from: https: //www.alibabagroup.com/en/ir/

[8]. Shyam-Sunder L, Myers SC. (1999) Testing static tradeoff against pecking order models of capital structure. J Financ Econ, 51(2): 219–244.

[9]. Graham JR. (2000) How big are the tax benefits of debt? J Finance, 55(5): 1901–1941.

[10]. Donaldson G. (1961) Corporate Debt Capacity: A Study of Corporate Debt Policy and the Determination of Corporate Debt Capacity. Boston: Harvard Business School.

[11]. Frank MZ, Goyal VK. (2003) Testing the pecking order theory of capital structure. J Financ Econ, 67(2): 217–248.

[12]. Moradi A, Paulet E. (2019) The firm-specific determinants of capital structure – An empirical analysis of firms before and during the Euro Crisis. Res Int Bus Finance, 47: 150–161.

References

[1]. Modigliani F, Miller MH. (1958) The cost of capital, corporation finance and the theory of investment. Am Econ Rev, 48(3): 261–297.

[2]. Fama EF, French KR. (2002) Testing trade-off and pecking order predictions about dividends and debt. Rev Financ Stud, 15(1): 1–33.

[3]. Chen JJ. (2004) Determinants of capital structure of Chinese-listed companies. J Bus Res, 57(12): 1341–1351.

[4]. Rajan RG, Zingales L. (1995) What do we know about capital structure? Some evidence from international data. J Finance, 50(5): 1421–1460.

[5]. Titman S, Wessels R. (1988) The determinants of capital structure choice. J Finance, 43(1): 1–19.

[6]. JD.com, Inc. Annual Report on Form 20-F for the fiscal year ended December 31, 2023. United States Securities and Exchange Commission; 2024 Apr 18. Available from: https: //ir.jd.com

[7]. Alibaba Group Holding Limited. Annual Report for Fiscal Year 2023. Hong Kong: Alibaba Group; 2023. Available from: https: //www.alibabagroup.com/en/ir/

[8]. Shyam-Sunder L, Myers SC. (1999) Testing static tradeoff against pecking order models of capital structure. J Financ Econ, 51(2): 219–244.

[9]. Graham JR. (2000) How big are the tax benefits of debt? J Finance, 55(5): 1901–1941.

[10]. Donaldson G. (1961) Corporate Debt Capacity: A Study of Corporate Debt Policy and the Determination of Corporate Debt Capacity. Boston: Harvard Business School.

[11]. Frank MZ, Goyal VK. (2003) Testing the pecking order theory of capital structure. J Financ Econ, 67(2): 217–248.

[12]. Moradi A, Paulet E. (2019) The firm-specific determinants of capital structure – An empirical analysis of firms before and during the Euro Crisis. Res Int Bus Finance, 47: 150–161.

Cite this article

Wang,Y. (2025). The Practical Applicability of Capital Structure Theories: A Comparative Study of Jd.com and Alibaba Group. Advances in Economics, Management and Political Sciences,208,15-23.

Data availability

The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.

About volume

Volume title: Proceedings of ICFTBA 2025 Symposium: Financial Framework's Role in Economics and Management of Human-Centered Development

ISBN: 978-1-80590-315-4(Print) / 978-1-80590-316-1(Online)
Editor: Lukáš Vartiak, Habil. Florian Marcel Nuţă
Conference website: https://2025.icftba.org/Galati.html
Conference date: 17 October 2025
Series: Advances in Economics, Management and Political Sciences
Volume number: Vol.208
ISSN: 2754-1169(Print) / 2754-1177(Online)

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