Can core competence help enterprises to deleverage?—empirical evidence based on text analysis

Abstract

This paper constructs the measurement index of core competence by text analysis method and empirically tests the influence of core competence on enterprise capital structure. We find that the stronger the core competence is, the lower the asset-liability ratio will be, which means core competence can help enterprises to deleverage. The mechanism test finds that the influence of core competence on enterprise capital structure is realized by enhancing profitability and increasing internal free cash flow, which supports the pecking order theory. Further research shows that (1) the influence of core competence on enterprise capital structure mainly plays a role in enterprises with high level of debt, indicating that core competence can play a positive role and effectively reduce the leverage ratio of high-leverage enterprises, and (2) the core competence can effectively reduce the leverage ratio of both state-owned enterprises and non-state-owned enterprises, indicating that core competence can play a positive role and achieve a full deleveraging. This paper clarifies the mechanism of core competence on enterprise capital structure, enriches the literature on the economic consequences of core competence and factors affecting enterprise capital structure, and provides scientific support for governments at all levels to implement the structural deleveraging policy accurately.