Abstract
With the improvement of financial leverage, enterprises will face more severe financial difficulties and more stringent external supervision. Enterprises tend to take a high-intensity strategic change to get rid of the trouble. Taking China's A-share manufacturing listed companies from 2008-2018 as the research sample, based on the theory of enterprise behavior and faultlines theory, this paper explores the impact of corporate financial leverage on strategic change and the moderating effect of the top management team (TMT) educational-level faultline strength. The results show that there is a positive correlation between corporate financial leverage and strategic change. TMT educational-level faultline strength negatively moderates the positive correlation between corporate financial leverage and strategic change. The existence of an educational-level faultline makes it difficult for the whole TMT to form a consensus of change. Our study suggests that improving the matching degree of education characteristics of TMT is the basic condition for enterprises to implement high-intensity strategic change.
Highlights
In response to the global economic crisis, China issued a 4 trillion economic stimulus policy in 2008
This paper argues that when the increase in corporate financial leverage leads to corporate financial distress and bankruptcy risk, enterprises urgently need to turn the crisis into safety by strengthening strategic change at this time, the existence of educational-level faultline strength makes it difficult for a senior management team to reach agreement on strategic change, which will weaken the intensity of strategic change of enterprises
The results show that there is a positive correlation between corporate financial leverage and strategic change
Summary
In response to the global economic crisis, China issued a 4 trillion economic stimulus policy in 2008. Under the ''debt-investment'' driven development model, the financial leverage of enterprises has continued to rise. In recent years, the global economic downturn has led to the rise of trade protectionism, the continuing economic and trade frictions between China and the United States, and the impact of the ''new corona pneumonia epidemic'' at the end of 2019, under the pressure of ''maintaining growth'', enterprises' financial leverage remains high. High financial leverage leads to difficult capital turnover and increased debt risk and reduces corporate performance (Zhou et al, 2021). Strategic change has become a significant choice for enterprises to deal with the uncertain environment (Mackey & Chia, 2013). Answering this question will have practical significance to appreciate the choice of high leverage enterprises At the same time, the implementation of strategic change is subject to the constraints of their financial situation, how will the rise of corporate financial leverage affect the strategic change? Answering this question will have practical significance to appreciate the choice of high leverage enterprises
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