Corporate Leverage Research Articles

Does oil price uncertainty affect corporate total factor productivity? Evidence from China

In the era of high-quality economic development, oil price volatility (OVX) and the total factor productivity (TFP) of corporations are pivotal issues for both policymakers and scholars. This study leverages the implied volatility of oil prices and financial data from Chinese listed industrial companies spanning 2010 to 2022 to investigate the influence of OVX on firms’ TFP and the underlying mechanisms. The findings reveal that OVX substantially dampens firms’ TFP, with corporate leverage and financialization identified as key channels through which this impact occurs. Further heterogeneity analysis indicates that the negative impact of OVX on TFP is particularly pronounced in firms operating in industries with low concentration and among small and medium-sized enterprises (SMEs). The extension analysis suggests a threshold effect in the relationship between OVX and corporate TFP, with the suppressive effect of OVX on TFP intensifying as the level of corporate financialization increases. Consequently, it is imperative for policymakers to closely monitor oil price fluctuations and implement timely strategies to mitigate the risks associated with OVX.

Market integration and the risk of corporate leverage manipulation: Evidence from China

We examine the impact of market integration on the risk of corporate leverage manipulation, using data on China's A-share listed firms. Our results indicate that market integration reduces this risk. This effect is more pronounced for firms in the Midwest, small firms, and those receiving less analyst attention. We also find that market integration promotes fair competition, reduces financing constraints, and improves information transparency, thereby reducing the risk of corporate leverage manipulation. This study provides a useful reference for promoting the construction of a unified domestic market and maintaining stability in the financial system.

COVID-19 exposure, financial flexibility, and corporate leverage adjustment

This study examines how firm-level exposure to the COVID-19 pandemic affects the speed of leverage adjustment among 3260 US-listed firms from 2019q1 to 2022q1. Using a novel measure of COVID-19 exposure, we find that higher exposure significantly reduces the speed at which firms adjust their leverage towards target levels. This effect is more pronounced for financially constrained firms and those operating in competitive markets. We further show that COVID-19 exposure adversely impacts corporate liquidity, default risk, and financial flexibility. Our findings highlight the role of exogenous shocks in shaping corporate financing decisions.

How does leverage manipulation affect corporate default risk?

ABSTRACT We examine the impact and mechanism of corporate leverage manipulation (LEVM) on default risk using a sample of Chinese listed companies from 2007 to 2023. We found that LEVM significantly increases the likelihood of default risk. This conclusion holds even after conducting a series of robustness tests. The analysis of mechanism indicates that leverage manipulation significantly increases financing costs and operational risks for companies, ultimately leading to an increase in default risk.

Common Institutional Ownership and Corporate Leverage Manipulation

Common Institutional Ownership and Corporate Leverage Manipulation

Determinants of corporate leverage and sustainability of small and medium‐sized enterprises: The case of commercial companies in Ecuador

Determinants of corporate leverage and sustainability of small and medium‐sized enterprises: The case of commercial companies in Ecuador

The impact of digital financial development on corporate leverage ratio: The case of a-share listed non-financial enterprises in China's Shanghai and Shenzhen stock exchanges.

This study investigates the impact of digital finance on corporate leverage ratios. The study employed a large sample of China's Shanghai and Shenzhen A-share non-financial listed enterprises from 2011-2020. The study's results depict that the development of digital finance can significantly reduce the leverage ratio of enterprises. We empirically identified that digital finance affects the difference in the term structure of the corporate leverage ratio. It was found that the development of digital finance has a significant negative impact on enterprises' short-term and long-term leverage ratios. Moreover, our heterogeneity analysis shows that the negative effect of digital financial development on corporate leverage ratios is different in state-owned and non-state-owned enterprises, large-scale and small-scale enterprises, and high-leverage and low-leverage enterprises. Mechanism analysis shows that the development of digital finance can reduce corporate leverage by lowering financing costs, alleviating financing constraints, and weakening non-systemic risks. Therefore, policymakers should focus on developing and adopting digital finance by creating a supportive regulatory environment, improving access to digital financial services, and encouraging innovation in the digital finance sector. Finally, our results remain robust after addressing endogeneity issues and conducting robustness checks.

Uncertainty of fiscal policy and corporate leverage decisions

We explore the impact of fiscal policy uncertainty (FPU) on corporate leverage in the context of Chinese firms. The analysis reveals a significant negative association between FPU and leverage, consistent across various leverage measures. Additionally, trade credit, financial distress risk, state ownership, and nonlinear dynamics significantly influence this relationship. These findings offer new insights into the effects of fiscal uncertainty on corporate leverage, highlighting the broader implications for corporate financial strategies.

Exploring Tax Strategies: Leverage and Firm Size Effect in Manufacturing Firms

The purpose of this study is to examine how leverage and firm size affect tax evasion in manufacturing companies that are listed on the Indonesia Stock Exchange (IDX) between 2021 and 2023. The lawful use of tax laws to lower tax obligations is known as tax avoidance. This practice has a substantial impact on state revenue, particularly in Indonesia where tax receipts are rising but the tax ratio stays low. Secondary data from financial reports of industrial firms is used in this study. By calculating business size using the natural logarithm of total assets and assessing leverage using the debt-to-asset ratio (DAR), it applies quantitative research approaches. The research results show that leverage has a significant influence on tax avoidance, where firms with higher levels of debt tend to carry out more tax reduction strategies because of the tax deduction from interest expenses. In contrast, firm size does not show a significant effect on tax avoidance, indicating that both large and small firms adopt similar tax avoidance measures. Managerial implications These findings emphasize the importance of regulatory oversight of corporate leverage and considering firm size in designing tax policies aimed at minimizing tax avoidance practices.

Does Fulfilling ESG Responsibilities Curb Corporate Leverage Manipulation? Evidence from Chinese-Listed Companies

Against the backdrop of economic transformation and sustainable development, this paper utilizes listed companies from the Shanghai and Shenzhen A-share markets from 2009 to 2021 as research samples, measures corporate leverage manipulation levels using the XLT-LEVM method, and employs a panel fixed effects model to empirically examine the impact of corporate ESG responsibility fulfillment on leverage manipulation behaviors and its underlying mechanisms. The results show that the performance of ESG responsibility can inhibit the leverage manipulation behavior of enterprises, and this effect is more obvious in enterprises with low analyst attention and excessive debt. Mechanism tests reveal that the fulfillment of ESG responsibilities by corporations exerts both reputational and informational effects, which, by mitigating financing constraints and enhancing information transparency, subsequently curtail corporate leverage manipulation. The analysis of economic consequences demonstrates that the inhibitory effect of ESG responsibility fulfillment on corporate leverage manipulation contributes to reducing the risk of corporate debt default. The research conclusions of this paper hold instructive significance for the positive governance role of ESG performance. Consequently, governments and regulatory bodies should guide and support enterprises in assuming ESG responsibilities, and corporations should increase their investments in ESG and enhance their ESG performance.

Digital government and corporate leverage: Evidence from China

Corporate leverage is an indicator of economic health, and this topic has attracted a great deal of attention since the international financial crisis of 2008. This paper constructs a model of enterprise decision-making under a digital government and theoretically analyzes how the government digital reform impacts corporate leverage and the mechanism of this impact. Theoretical analysis has previously shown that digital reforms by governments help to ease the information asymmetry between banks and enterprises, which in turn affects the actual economic activities of enterprises. Based on these findings, the “one-stop government service” natural experiment used in this paper and the empirical analysis using a multiphase difference-in-differences (DID) method show that digital government can inhibit the short-term debt financing of enterprises while improving their long-term debt financing. This study further finds that the digital government can improve the level of long-term debt for long-term use, thereby reducing corporate leverage. By enriching the theoretical and empirical research on government digital reform, this paper contributes significant theoretical and practical insights to the literature on corporate leverage in the context of government factors.

Corporate leverage during COVID-19

ABSTRACT This article examines the impact of the health pandemic on global firm leverage from 2020 to 2021, and finds firms decrease their leverage during the pandemic, via long-, and short-term debt. As COVID-19 limited external funding opportunities, firms are using internal capital to reduce debt. Further analysis indicates that this effect is significant for financially constrained firms. The results are robust to different proxies.

Green credit policy and corporate deleveraging: Evidence from China

Green Credit Policy (GCP) plays a dual role in environmental protection and financial regulation. Its effectiveness in driving enterprises to deleverage is of great significance in accelerating the development transition. This paper uses the difference-in-differences method to investigate the impact of the Green Credit Guidelines (GCG) on corporate deleveraging in Chinese A-share listed companies between 2007 and 2021. The results show that GCP has a driving effect on enterprise deleveraging. The mechanism tests indicate that corporate leverage ratio can be reduced by increasing financing constraints and reducing the financial distress risk. The findings offer policy implications for promoting high-quality economic development.

How oil price uncertainty influences corporate capital structure: evidence from BRIC countries

ABSTRACT This paper examines how corporate capital structures in emerging markets – Brazil, Russia, India, and China (BRIC) – were impacted by oil price uncertainty (OPU) from 2007 to 2019. We find that the relationship between OPU and firm leverage in BRIC markets is nonlinear and U-shaped. The extent to which OPU affects both short- and long-term leverage varies across nations. These findings are robust to endogeneity tests. Furthermore, while the OPU effect on corporate leverage is lessened in high-growth enterprises, it is strengthened in materials and energy companies. From an OPU perspective, this paper contributes intriguing knowledge of the corporate finance field.

Does the leverage of a company differ when led by a CEO from a reputable university?

This study investigates the influence of the educational background of Chief Executive Officers (CEOs) from reputable universities on corporate leverage. Company leverage is an important financial policy that determines a company’s success. A review grounded in upper echelons theory indicates a correlation among CEO characteristics, strategic decisions, and corporate outcomes, with financial leverage serving as the representation in this study. The study was conducted on top-rated Environmental, Social, and Governance (ESG) companies in Southeast Asia during 2020–2022 using 1108 observations. Data were obtained from annual reports, company websites, and Refinitiv, and analyzed using regression. The results indicate that CEOs with an educational background from reputable universities tend to have lower leverage. This suggests that CEOs from prestigious universities tend to exhibit risk-averse tendencies when formulating or executing company debt policies. This study contributes to the literature on the correlation between CEO educational backgrounds and firms’ leverage, providing insight into the relationship between CEOs from reputable universities and the level of corporate leverage. It is also expected to contribute to the development of Upper Echelons Theory and the implementation of company policies such as CEO qualifications, CEO recruitment, and debt policy.

Do ESG ratings inhibit corporate leverage manipulation? The moderating effects of internal and external supervision

Purpose This paper aims to investigate the relationship between corporate environmental, social and governance (ESG) ratings and leverage manipulation and the moderating effects of internal and external supervision. Design/methodology/approach The authors draw on a sample of Chinese non-financial A-share-listed firms from 2013 to 2020 to explore the effect of ESG ratings on leverage manipulation. Robustness and endogeneity tests confirm the validity of the regression results. Findings ESG ratings inhibit leverage manipulation by improving social reputation, information transparency and financing constraints. This effect is weakened by internal supervision, captured by the ratio of institutional investor ownership, and strengthened by external supervision, captured by the level of marketization. The effect is stronger in non-state-owned firms and firms in non-polluting industries. The governance dimension of ESG exhibits the strongest effect, with comprehensive environmental governance ratings and social governance ratings also suppressing leverage manipulation. Practical implications Firms should strive to cultivate environmental awareness, fulfil their social responsibilities and enhance internal governance, which may help to strengthen the firm’s sustainability orientation, mitigate opportunistic behaviours and ultimately contribute to high-quality firm development. The top managers of firms should exercise self-restraint and take the initiative to reduce leverage manipulation by establishing an appropriate governance structure and sustainable business operation system that incorporate environmental and social governance in addition to general governance. Social implications Policymakers and regulators should formulate unified guidelines with comprehensive criteria to improve the scope and quality of ESG information disclosure and provide specific guidance on ESG practice for firms. Investors should incorporate ESG ratings into their investment decision framework to lower their portfolio risk. Originality/value This study contributes to the literature in four ways. Firstly, to the best of the authors’ knowledge, it is among the first to show that high ESG ratings may mitigate firms’ opportunistic behaviours. Secondly, it identifies the governance factor of leverage manipulation from the perspective of firms’ subjective sustainability orientation. Thirdly, it demonstrates that the relationship between ESG ratings and leverage manipulation varies with the level of internal and external supervision. Finally, it highlights the importance of governance in guaranteeing the other two dimensions’ roles by decomposing overall ESG.

STRATEGIC TIMING: ANALYZING MARKET TIMING STRATEGIES FOR NON-FINANCIAL COMPANIES' LEVERAGE

This study investigates the impact of market timing strategies on the leverage of non-financial companies. Market timing involves making financial decisions based on expectations of future market movements. Using a sample of non-financial firms, we examine how companies strategically time their debt issuance and repayment activities in response to market conditions. Our analysis considers factors such as interest rate fluctuations, market volatility, and economic cycles. We employ quantitative methods to assess the effectiveness of different market timing strategies in influencing firms' leverage levels. The findings shed light on the dynamics between market conditions and corporate leverage decisions, providing valuable insights for financial managers, investors, and policymakers.

Local government debt and corporate tax avoidance: Evidence from China

Leveraging a large sample of publicly listed companies in China from 2010 to 2021, this study investigates the impact of local government debt on corporate tax strategies. We provide compelling evidence that the scale of local government debt is positively associated with corporate tax avoidance. In addition, we find that corporate leverage ratios, financial constraints, and debt financing costs are three plausible mechanisms underlying the relationship we identified. The tax implications of local government debt are more evident among non-SOEs, small firms, and firms in financially less-developed regions. Our key findings are robust to a battery of identification strategies. Overall, this study enriches the literature on government debt and corporate tax avoidance.

Can asset‐backed securitisation reduce corporate leverage? Evidence from China

AbstractAlthough Chinese regulatory authorities view corporate asset‐backed securitisation as a powerful tool for deleveraging, its effectiveness remains unexamined. Employing a look‐through approach to data from nonfinancial corporate asset‐backed securitisation transactions in China, we identify the actual originators and examine the impact of corporate asset‐backed securitisation on their leverage ratios. Regrettably, we find that corporate asset‐backed securitisation significantly increases the leverage ratio. This result holds true across both state‐owned and non‐state‐owned enterprises, as well as large‐scale and small‐scale enterprises. Finally, this study reveals that the effect of corporate asset‐backed securitisation on the leverage ratio is partially mediated by internal financing capacity.

Corporate leverage and leverage speed of adjustment: Does environmental policy stringency matter?

This study examines the effects of environmental policy stringency on corporate leverage and speed of adjustment across 39 countries from 1994 to 2020. The primary empirical findings illustrate that environmental policy stringency is negatively related to leverage and leverage adjustment speed. Such effects are prominent for firms with financial constraints, in countries with significant climate-risk exposure and corruption, or in Asia. Based on our main findings, when policymakers implement environmental policies, corporate decisions regarding leverage and debt financing should be taken into account, as these policies can discourage firms from increasing leverage and slow down the speed of adjustment toward optimal leverage.