Does Deleveraging Policy Improve the Performance of Listed Companies? Evidence from a Quasi-Natural Experiment
Abstract
To investigate the impact of deleveraging policy on corporate performance, financial data for 2452 listed companies in China's A-shares and Hong Kong shares were examined in this article. Using a difference-in-differences estimation model and a quasi-natural experiment in China, we find that deleveraging policy has an inhibiting effect on the corporate performance of mainland enterprises. In terms of the inhibiting effect, private firms suffered more than state-owned enterprises (SOEs). A liquidity-corporate performance model is also being developed to investigate the mechanism of the inhibiting effect of deleveraging policy on corporate performance. The findings show that the deleveraging policy harms corporate performance by reducing firm liquidity.
Keywords
Full Text:
PDFReferences
Lai K, Prasad A,Wong G, &Yusoff I. (2020). Corporate deleveraging and financial flexibility: a chinese case-study. Pacific-Basin Finance Journal, 61.
Harry DA. , Gonalves AS, & Stulz RM. (2018). Corporate deleveraging and financial flexibility. Review of Financial Studies, 31(8):3122-3174.
Liu XG, Liu YC. (2019). Leverage, Short-term Debt for Long-term Use and corporate performance. Economic Research Journal, 54(7):127-141.
Harford J, Klasa S, & Walcott N. (2009). Do firms have leverage targets? evidence from acquisitions. Journal of Financial Economics, 93(1), 1-14.
Wang HJ, Yang Z, Ruan GM, et al.(2018). Deregulation of Interest Rate, Excessive Debt, and Debt Maturity Structure, Journal of Financial Research, (2), 100-117.
Shen HM, Cheng XK, &Yang MJ.(2021). deleveraging, Stabilizing Leverage and Corporate Capital Structure: Based on Implementation Effects and Paths, Collected Essays on Finance and Economics,(1):75-84.
González VM. (2013), Leverage and corporate performance: international evidence, International Review of Economic Finance, 25:169-184.
Detthamrong U, Chanchara N. and Vithessonthi C. (2017). Corporate governance, capital structure and corporate performance: evidence from Thailand, Research in International Business and Finance, 42:689-709.
Denis, D. (2011). Financial flexibility and corporate liquidity, Journal of Corporate Finance, 17:667-674.
Gharsalli M. (2019). High leverage and variance of SMEs performance. The Journal of Risk Finance, 20(2), 155–175.
Tsuruta D. (2016). Variance of corporate performance and leverage of small businesses, Journal of Small Business Management, 55(3): 404-429.
Modigliani, F. and Miller, M.H. (1958). American Economic Association The Cost of Capital, Corporation Finance and the Theory of Investment. American Economic Review, 49(4):655-66.
Gill, A., Biger, N. and Mathur, N. (2011). The effect of capital structure on profitability: evidence from the United States. International Journal of Management, 28 (4):3-15.
Tsuruta, D. (2015). Leverage and corporate performance of small businesses: evidence from Japan. Small Business Economics, 53(4):924-948.
Jensen, M.C. and Meckling, W.H. (1976). Theory of the firm: managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4):305-360.
Chen YB, Liu ZX, Chen WZ. (2018). The Asset Bubbles Under Economic Growth Slowdown. Economic Research Journall, 53(10): 16-32.
Mei DZ, Song JX.(2021). Financial Sector Openness and Macroeconomic deleveraging. China Industrial Economics, (10):78-97.
Devlin W, Mckay H.(2008). The Macroeconomic Implications of Financial deleveraging. Economic Round Up,(4):47.
Sun LX, 2016. "Corporate deleveraging and Macroeconomic Policies: Evidence from China," MPRA Paper 69140, University Library of Munich, Germany.
Ji M, Yan BY, Li HJ. (2017). Leverage Structure, Level and Financial Stability: Theory and Empirics. Financial Research,(2): 11-25.
Watts R.L. and Smith C. W. (1992). The investment opportunity set and corporate financing, dividend, and compensation policies. Journal of Financial Economics, 32(3):263-292.
Qi HD, Liu H, Zhu W.(2018). Research on deleveraging Performance of Over-indebted Enterprises .Accounting Research, (12): 3-11.
Allen, F. , Qian, J. , & Qian, M. . (2005). Law, finance, and economic growth in china. Journal of Financial Economics, 77(1), 57-116.
Chang C, Chen X., Liao G., 2014. What are the reliably important determinants of capital structure in China? Pacific-Basin Finance Journal, 30, 87-113.
Rao PH, Jiang GH.(2013). The Impact of Monetary Policy on the Relationship between Bank Loans and Business Credits. Economic Research Journal, 48(01): 68-82+150.
Faff R, Kwok WC., Podolski, E.J., Wong, G.. (2016). Do corporate policies follow a life-cycle? J. Bank. Financ. 69, 95-107.
Yang XF. (2018). Research on liquidity crisis under the background of deleveraging. World Economy Studies, (11):44-50+64+136.
Jimenez G, Ongena S, Peydro JL, et al.(2012). Credit Supply and Monetary Policy: Identifying the Bank Balance-Sheet Channel with Loan Applications. American Economic Review, 102(5):2301-2326.
Arindam B, Nandita M. B.(2016).Factors determining capital structure and corporate performance in India: Studying the business cycle effects.The Quarterly Review of Economics and Finance,61:160-172.
Ongena S., Peydro JL., Horen N. V..(2013). Shocks Abroad, Pain at Home? Bank-Firm Level Evidence on the International Transmission of Financial Shocks. DNB Working Papers,63(4):698-750.
Xiao HL, Tang QQ, and Zhou MH.(2014). The impact of debt on firms' innovation investment patterns: based on empirical study of R&D heterogeneity. Science Research Management, 35.10:9.
Shin H., Soenen L.. (1998). Efficiency of working capital management and corporate profitability. Financial Practice and Education, 8:37-45.
Zhou YJ, Zou F, Wang ZR.(2014). Profitability, Technological Innovation Capability and Capital Structure: An Empirical Analysis Based on High-tech Firms. Science Research Management, 35(1): 48-57.
Cao P, Wang GJ.(2019). Does Replacement of Business Tax with Value-added Tax Improve Enterprise Value?Journal of Finance and Economics, (3): 20-30.
Yang D.(2013). Corporate Governance and Corporate Performance -- A Sociological Analysis Based on Chinese Experience.Social Sciences in China, (1): 72-94, 206.
Wang K. Miao, Y. Su CH. et al.(2019).Does Corporate Charitable Giving Help Sustain Corporate Performance in China? Sustainability, 11, 1491.
Brewer Mike & Crossley Thomas F. & Joyce Robert, 2018. "Inference with Difference-in-Differences Revisited," Journal of Econometric Methods, De Gruyter, vol. 7(1), 1-16.
Myers SC, Rajan RG.(1998). The Paradox of Liquidity. Quarterly Journal of Economics, 13(3):733-771.
Han LL, Li K.(2008). Control Rights, Cash Flow Rights and Capital Structure -- An Empirical Analysis Based on Panel Data of Chinese Private Listed Companies .Accounting Research, (3): 66-73, 96.
Zhu Y and Zhang MC. (2013).Enterprise Management Team Human Capital，R&D Investment and Enterprise Performance. Accounting Research, (11):45-52+96.
Li Y, Qin YH, Zhang XF.(2011).Corporate property rights, managerial background and investment efficiency. Management World,(1): 135-144.
Zhong NH, Liu ZK, He JX and Su CL.(2016). The Structural Problem of China’s Non-financial Corporate Debt. Economic Research Journal, 51(7): 102-117.
DOI: http://dx.doi.org/10.18686/fm.v7i4.4869
Refbacks
- There are currently no refbacks.
