Corporate financing theories of transaction cost economics show that debt and equity are a kind of governance structure,which mainly de- pends on asset specificity.Based on Chinese manufacturing's limited liability firms in 2001—2003,our empirical results find that capital struc- ture is negatively associated with its asset specificity and operating profitability,but asset specificity is positively associated with its operating profitability.Therefore,the decision of capital structure is considered both its asset specificity and profitability,...