Abstract
This paper empirically investigates the causal effects of debt restructuring on firm investment using the propensity matching score with difference-in-difference (PSM-DID) method based on the panel data of listed companies in China from 2005 to 2016. The results show that the impact of debt restructuring on firm investment are heterogeneous among different property rights, industry natures, restructuring payment modes and amounts, and debt renegotiation characteristics. Our analyses indicate that debt restructuring has a more significant impact on promoting investment efficiency for state-owned enterprises (SOEs), firms in industries with excess capacity, and debt-restructuring firms that pay off debts with assets. Debt restructuring significantly aggravates overinvestment when the amount of debt restructuring is large. When shareholder bargaining power is higher than that of debtholders in the debt renegotiation, debt restructuring has a significant inhibitory effect on underinvestment. Smaller debt renegotiation frictions exacerbate underinvestment and help mitigate overinvestment. This paper provides a new perspective for understanding the rationality of debt restructuring and has implications for policymakers and corporate decision makers aiming to improve debt governance and investment efficiency.
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