Abstract
This study investigates the effect of industry tournament incentives on the speed of leverage adjustments in China. Using a large sample of Chinese listed firms from 2007 to 2017, we find that industry tournament incentives increase the speed of leverage adjustments towards the target leverage. This effect is attenuated for firms with strong monitoring and for firms with CEOs who are near-retirement or brand new. Moreover, the positive association between industry tournament incentives and the speed of leverage adjustments towards the target level is less pronounced for state-owned enterprises compared to non-state-owned enterprises. Overall, our study indicates that industry tournament incentive is an important determinant of capital structure dynamics.
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